Whenever the Federal Reserve makes an interest-rate announcement, it says it does so in service to its dual mandate.
The mandate, in place since 1977, requires the Fed to:
- Promote maximum employment
- Promote stable prices and moderate long-term interest rates.
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Achieving the mandate’s goals isn’t easy. There are wild bouts of inflation to worry about. Wars that need financing. Pandemics that can shut an economy down. And financial crises that threaten the very stability of the financial system.
Related: How bad a stock slump is this?
In serious crises the Fed has stepped in. It played a key role in stabilizing the financial system in the 2008-2009 financial crisis. And it made sure the U.S. economy didn’t seize up entirely in the Covid-19 pandemic.
The Fed sharply boosted interest rates starting in early 2022 when inflation soared to 9% and started, finally, to cut rates in fall 2024. But it has not cut rates since December.
Investors saw stocks tumble this week because of worries about tariffs the Trump administration threatened to impose on goods imported from Mexico, Canada and China as well as massive jobs cuts among the federal workforce.
The Standard & Poor’s 500 Index dropped 4.6% in the first four days of the week.
The Nasdaq Composite Index fell 7.5%. It has fallen 10% from closing at a record 20173.89 on Dec. 16. A 10% fall from a recent high is the popular definition of a correction.
Nvidia (NVDA) , Tesla TSLA and Broadcom (AVGO) all dropped more than 10% on the day.
Tesla is off 40% from its 52-week high of $488.54, reached Dec. 18.
In truth, this may not prove to be a full-blown crisis, if only because the Trump administration delayed some of the tariffs for a month. That helped trim the day’s losses.
Related: Costco beats Walmart in a surprising way
A Fed voice offers support
But the selling has been unsettling, and it caused one Fed official to make sure Wall Street and anyone else listening knows the Fed won’t let things get out of hand.
Christopher Waller, a Fed governor since 2020, said Thursday the Fed was committed to moving its short-term rates lower. And it believes that conditions are benign enough so the central bank can cut its key Federal Funds Rate, now at 4.25% to 4.5%. Well into 2024, the rate was as high as 5.25% to 5.5%.
The Federal Funds Rate and the 10-year Treasury yield, now about 4.3%, are blamed for mortgage rates staying close to 7% and stunting home sales.
A rate cut probably won’t be approved at the Fed’s March 18-19 meeting, Waller said, but a cut later this year is likely as overall inflation, now just under 3%, moves closer to the Fed’s 2% inflation target.
He offered a label for the idea, “good-news rate cuts,” at a Thursday session at The Wall Street Journal’s CFO Summit in New York City. “I’m kind of believing that the good-news rate cuts are still in place.”
Investors are in sync with Waller. CME Group’s FedWatch tool sees the central bank making no change this month, nor at its May 6-7 meeting. A cut might come at the Fed’s June 17-18 meeting, with another at the Fed’s July 29-30 meeting and maybe a third in the fall.
This is a big change in market sentiment. A week or two ago, there was talk of no rate cuts this year.
Federal Reserve Gov. Christopher Waller at a March 2024 Fed Listens event in Washington.
More Economic Analysis:
- U.S. consumers are wilting under renewed stagflation risks
- Jobs reports provide critical look at economy, could roil markets
- Fed inflation gauge indicates big changes in key economic driver
The big boss, Powell, will weigh in, too
Waller may get some reinforcement this afternoon from Fed Chairman Jerome Powell. He speaks Friday in New York at the University of Chicago Booth School of Business 2025 U.S. Monetary Policy Forum.
Ahead of Powell’s speech, futures markets see stocks opening higher.
That assumes the Labor Department February jobs report is benign. The consensus is the unemployment rate will come in at 4% with non-farm payrolls rising about 160,000.
The report is released at 8:30 a.m. ET.
A report by outplacement firm Challenger, Gray & Christmas estimated there were 172,017 layoffs in February, up 245% from a year ago.
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