Market Update - Powell signals no “Fed put” despite slower growth and market volatility

Highlights: US equity markets sold off after Fed Chair Jerome Powell indicated no “Fed put” despite slower US growth outlook and market volatility triggered by tariff uncertainty. Powell reiterated the wait-and-see approach of the Fed, as he expected inflation to rise and the labour market to come under pressure due to higher tariffs. We have downgraded our US and global GDP forecasts to reflect negative impact of tariff escalation and growing policy uncertainty under the new US administration. We now project US GDP growth to slow to 1.6 per cent for 2025 (down from 1.9 per cent previously) and 1.3 per cent for 2026 (down from 1.8 per cent previously). On the inflation front, we have raised US CPI forecasts to 2.9 per cent in 2025 and 3.1 per cent in 2026.

• Despite our new forecasts for weaker US growth, we do not expect any shift in Fed policy. We continue to expect the Fed to deliver three rate cuts this year, beginning in June. The three rate cuts would be 25bps in each quarter leaving the Fed funds rate at 3.75 per cent by year-end
• In his 16 April speech delivered at the Economic Club of Chicago, Powell said “no” to a media question about the “Fed put”. He reiterated the Fed’s patient and wait-and-see approach, dashing market hopes of immediate Fed intervention to boost the equity markets. Despite the spike in volatility, Powell noted that financial markets remained orderly and functioning well, citing abundant reserves and healthy liquidity conditions
• Powell expected unemployment and inflation to move away from the Fed's goals "probably for the balance of this year” and acknowledged that a weakening economy and elevated inflation could bring the Central Bank's two goals into conflict. He reiterated that the Fed remained well positioned to wait for greater clarity before considering any policy adjustments
• We continue to see potential headwinds from fiscal tightening and downward revisions to 2025 earnings as tariff uncertainty persists. In this challenging environment, we maintain a defensive strategy with strong focus on global diversification, multi-asset strategies, active management, long-term structural themes, and selective bottom-up stock picking to mitigate market volatility