The fate of the market could be in the hands of the ‘Powell Put’

Finance


The chairman has expressed skepticism in the past about programs like quantitative easing, which helped push the Fed’s balance sheet past $4.5 trillion. And he has talked about the importance of giving the central bank enough ammunition to fight the next crisis, something that low interest rates would make more difficult.

Strategist Noah Weisberger of AB Bernstein, said the current Powell put is likely “out of the money,” meaning it hasn’t been reached yet, and the next one has a “strike price,” or point at which the impetus for action will kick in, that is even lower.

That means “a more severe bout of worry” may be necessary “to reactivate it the next time around,” said Weisberger, who is the firm’s managing director of U.S. portfolio strategy.

The market, though, thinks that at the very least the Fed isn’t going to raise rates anytime soon.

Futures pricing points to no chance of a rate hike at least through January 2010, according to the CME’s tracker. In fact, traders are indicating about a 31 percent chance of a cut at the first Federal Open Market Committee meeting next year, with the actual reduction coming around mid- to late-year when the implied funds rate is 2.17 percent.



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