Faced with the turbulence of the financial markets amplified by the commercial policies of Donald Trump, Susan Collins, president of the Fed of Boston, announces that the federal reserve is preparing to intervene. Among the options envisaged to stabilize markets, a reduction in interest rates could become inevitable if the situation is deteriorating.
The Fed ready to intervene to stabilize the markets!
While Donald Trump announces a 90-day break on customs tariffs, the United States Federal Reserve is preparing to intervene to stabilize the financial markets if necessary. Susan Collins, president of the Boston Fed, said that the Central Bank has several tools to respond to any disturbance, in particular in terms of liquidity and operating markets. These comments come when the American financial markets are shaken by the trade policies of President Trump, triggering fears of recession up to 60 % according to JPMorgan.
Consequently, the disturbances affected Wall Street and spread to the state bond market, a central sector of the global financial system. Collins said that, although the current situation does not lead to major liquidity problems, volatility has increased, especially on the Treasuries market. Among the potential tools to stabilize the markets, the reduction in interest rates is envisaged, but it is not a priority to solve immediate problems.
Towards a drop in rate?
Some experts believe that a drop in rates could become inevitable if market volatility is intensifying. This measure would be intended to facilitate access to credit and encourage economic recovery. However, Susan Collins clarified that the Fed would not rush towards a reduction in rates, because it first wishes to observe the evolution of economic conditions. Interest rates should therefore remain stable in the short term, the Fed favoring more targeted interventions to treat specific market dysfunctions.
In 2020, during the Coronavirus crisis, the Fed had adopted exceptional measures, such as the resumption of debt purchase programs and the reduction of interest rates at levels close to zero. This approach could again be envisaged if market conditions required it.
The Fed therefore remains vigilant in the face of market developments, ready to intervene to maintain its stability. However, it prefers to use targeted tools and avoid reducing interest rates except in the event of absolute necessity. The next few weeks will be crucial to assess the impact of trade policies, which have already had the markets of $ 3,250 billion in 24 hours.
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