Heard of the ‘Fed Put’? Powell May Be Selling Calls
Stock investors have been conditioned to expect central bank support. They could be in for a shock.
Fed Chair Jerome Powell is talking tough. Will that be enough?
Photographer: Valerie Plesch/Bloomberg
Inflation is running at a 40-year high, and one of the few ways to cool the hot economy is to make everyone feel a little poorer — a trick known as the reverse wealth effect. In essence, that’s when stocks and other asset prices fall, prompting consumers to reconsider buying that car, dishwasher or trip to Hawaii. Many people won’t like it in the near term, but ultimately it can help restore a more healthy equilibrium between supply and demand and rein in the pace of rising prices.
None of that is happening now, of course, because stocks refuse to retreat, so the Federal Reserve might have to shock markets into submission.