US Treasuries are selling off at a pace we’ve rarely seen, levels that have historically triggered some form of intervention by the Federal Reserve despite Fed Chair Jerome Powell saying on Friday that it wasn’t time for a “Fed put” yet. Yet this kind of pressure in the bond market isn’t common, and when it has happened in the past, the Fed has often stepped in to ensure market stability.
We’ve seen this playbook before:
- In 2023, during the SVB crisis, the Fed quickly rolled out the Bank Term Funding Program to shore up confidence in the banking system.
- In March 2020, as the pandemic shock hit markets, the Fed slashed rates twice and launched unlimited QE alongside a full suite of emergency liquidity tools.
- Back in 2019, the Fed stepped in with repo operations to calm the money markets when they seized up unexpectedly.
That said, the bar for action is higher this time. Inflation remains sticky, so the Fed may be slower to respond with rate cuts – but that doesn’t mean it’s out of options. It is also facing higher stagflationary risk in both growth and inflation with a dual mandate, making policy decisions less certain.
Indeed, when Powell was asked what the policy response would be to the current tariff situation leading to higher unemployment and higher inflation, he responded by saying that they would target whichever is further away from equilibrium level, hence the wait-and-see approach. The Fed may still be waiting, but it has a vast toolkit, including expanded repo operations, targeted lending programs, and balance sheet measures that can be deployed swiftly if market functioning becomes impaired.
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