Federal Reserve officials: If necessary, the Federal Reserve is "absolutely" prepared to help stabilize the market, U.S. stocks rise

On Friday, Boston Federal Reserve President Susan Collins stated that the Federal Reserve is "absolutely" prepared to help stabilize the market if necessary. This statement led to an expansion of gains in U.S. stocks during the trading session. Renowned financial journalist Nick Timiraos, known as the "new Federal Reserve correspondent," cited Collins' remarks that the high inflation caused by tariff increases could slow economic growth, creating a "challenging environment" for the Federal Reserve, forcing it to wait for signs of economic weakness before considering interest rate cuts. Collins noted that the market is currently functioning well, and there are no overall liquidity concerns observed yet. However, if financial markets become chaotic, the Federal Reserve is "absolutely prepared" to use its policy tools to stabilize the market. The Federal Reserve indeed has tools to address market functioning or liquidity issues, which will be utilized if necessary. Collins pointed out that they have quickly employed various tools in the past, and they will certainly act again when needed. She referred to the Federal Reserve's past interventions in the face of market turmoil. Collins' remarks came at a time when the U.S. market experienced severe turbulence due to President Trump's initiation of a global trade war, raising concerns about an economic recession. Trump's tariffs triggered a triple whammy for U.S. stocks, bonds, and currencies. The sell-off in U.S. stocks that began last week has now spread to the U.S. Treasury market, which is valued at $29 trillion and is the core of the global financial system. Collins also stated that this year's inflation rate could exceed 3%. Her main concern is to ensure that the one-time cost shock from tariff increases does not lead to public expectations of persistently rising inflation. That would create a worrying environment, requiring the Federal Reserve to adopt a wait-and-see approach regarding interest rate cuts. She emphasized that emergency rate cuts will not be the primary tool to address deteriorating market conditions. "The core interest rate tool we typically use for monetary policy is not the only tool in the toolbox, and it may not be the best means to address liquidity or market functioning issues. The Federal Reserve currently has some 'permanent mechanisms' that are already in operation and can further support market functioning." Collins stressed that whether the Federal Reserve intervenes will depend on "the specific market conditions we observe." On the same day, the Federal Reserve's third-in-command, New York Fed President John Williams, also warned that Trump's tariff policies could lead to a sharp rise in inflation, an increase in unemployment, and significantly weaken U.S. economic growth. Currently, the yield on the U.S. 10-year Treasury bond—a benchmark interest rate affecting trillions of dollars in global assets—has surged by 0.5 percentage points to 4.5% over the past week, representing a significant fluctuation, as this asset typically experiences minimal price changes. Wall Street banks and investors have indicated that as volatility in the U.S. Treasury market increases, liquidity is deteriorating. Industry insiders pointed out that the poor liquidity is due to high volatility. Despite the large fluctuations, market functioning remains orderly. As of now, the sell-off in the Treasury market is "proceeding in an orderly manner." During the severe market disorder caused by the COVID-19 pandemic in 2020, the Federal Reserve conducted large-scale interventions. At that time, investors were panicking over the impact of the pandemic on the global economy, leading to a standstill in key financing markets. The Federal Reserve quickly activated some of the policy tools used during the 2008 financial crisis to provide a "pressure relief valve" for the lending market; at the same time, it also began large-scale purchases of corporate bonds for the first time. In addition, the Federal Reserve lowered interest rates to near zero and removed the cap on its Treasury bond purchases. On the same day, JP Morgan CEO Jamie Dimon predicted that if there was "chaos" in the U.S. Treasury market, it would prompt the Federal Reserve to intervene. Dimon attributed the anticipated turmoil to "all the rules and regulations" and believed that the Federal Reserve would only intervene when they "start to panic a little." Dimon advocated for changes to banking rules to avoid a repeat of the 2020 U.S. Treasury market collapse, pointing out that there are "serious flaws" in regulatory frameworks that need reform to enable banks to become more active market intermediaries