Federal Reserve, stop the bailout

Source: Global Market Live

On Friday, while U.S. financial markets were closed, gold continued to fall for the third consecutive day, and the shock brought to the market by the new Fed Chairman, Walsh, is far from over.

In the past 20 years, the market has developed a very firm belief: as long as asset prices fall hard enough, the Fed will eventually step in. The economy is bad—rate cuts. Unemployment rises—rate cuts. The stock market crashes—rate cuts. When banks have problems—liquidity injections. That’s why the phrase “bad news is good news” came about. But with Walsh coming to power, this phrase may disappear.

Walsh’s first meeting:

Cancel forward guidance, no more spoilers, let the market guess what’s next;

No dot plot from himself;

No longer putting the stock market’s sentiment first; the Fed’s job is to stabilize prices, not to set new highs for the S&P 500 day after day.

Walsh’s childhood shadow is “hyperinflation.” What he fears most is a loss of credibility for the U.S. dollar, runaway inflation, and persistently high interest rates. His logic is that it’s better for the market to suffer a bit than to let inflation spiral out of control again.

In the past, Volcker was great not because he was a good speaker or because of his press conferences, but because he actually had the guts to act. In the 1980s, in order to kill inflation, he pushed interest rates up to 20%. As a result, the stock market crashed, companies went bankrupt, unemployment soared, and he was widely criticized across the U.S. But he didn’t back down, and America’s golden era came afterward.

Here’s the question. For Walsh, if U.S. stocks drop by 30%, the AI bubble bursts, there are problems in real estate, and the unemployment rate rises rapidly, will Walsh dare to stick to a hawkish stance? Every Fed chairman has a plan before taking punches—let’s see how things look when Nasdaq drops 30%.

Our judgment is as follows:

· At the start, Walsh will definitely be very hawkish as he has just taken office and must establish his authority. If he eases up at his first meeting, the market won’t take him seriously in the future. Thus, the current period of a stronger U.S. dollar, pressured gold, and rising rate hike expectations is completely normal.

· The real test will come in the next six months. If CPI rebounds, oil prices continue to rise, and employment remains strong, Walsh may indeed hike rates. But if the AI bubble starts to burst and U.S. stocks plunge, the Fed will face a true stress test. Only then will we know if Walsh is another Volcker or just another Powell.

Currently, the most interesting phrase isn’t “the Fed has stopped bailing out the market” but rather that the Fed is working hard to convince the market that it is willing to stop bailing it out.

The difference between these two phrases may look like a few words, but actually separates a real crisis. Only when the next market crash comes and Walsh still refuses to step in, will people truly believe: the Fed Put is dead. Until then, it’s all just a trailer.