Will the Fed Rescue the Plunging U.S. Stocks? Can Powell Act—or Even Try—at the March Meeting?

TradingKey – The early days of Trump’s return to the White House have failed to deliver the "Make America Great Again" (MAGA) rally investors hoped for, instead pushing the S&P 500 into correction territory. As the Federal Reserve’s March policy meeting approaches, markets are pinning hopes on Chair Jerome Powell’s guidance.

On March 19, the Fed will announce its March monetary policy decision. Economists broadly agree the central bank will leave the federal funds rate unchanged at 4.25%-4.5%, with markets pricing in the first potential rate cut as early as June.

The key to Fed easing hinges on progress in cooling inflation—a story now clouded by mixed data:

• February’s annual CPI eased to 2.8%, while PPI dropped to 3.2%, both below forecasts and prior readings.

• The University of Michigan’s short-term inflation expectations surged to their highest since 2022, with 5-year inflation expectations jumping to 3.9%—a peak not seen since 1993.

Rising inflation expectations could delay Fed rate cuts, while the economic growth outlook may force policymakers to rebalance growth risks. Notably, the University of Michigan’s March consumer confidence index fell for a third straight month, hitting a two-year low.

Morgan Stanley noted that the Fed’s data-dependent approach will likely reinforce a "no rush to act" stance. The bank expects the Fed to:

1. Raise 2024 inflation projections

2. Lower GDP growth forecasts

3. Maintain unemployment rate estimates

A critical focus of this meeting is whether Powell will attempt to "rescue" markets amid the S&P 500’s 10% slide from recent highs—potentially through equity-market commentary or dovish signals about rate cuts.

Mizuho Securities USA noted, “Powell needs to give some sort of a signal that they’re watching it.”  He’ll likely state the Fed doesn’t target stock prices but can’t ignore the recent plunge.

Morningstar analysts added, “The stock market is trying to get any type of insight as to when the Fed will be comfortable enough to implement their next rate cut.”

"The first step that the stock market would like to see from (the Fed) is them signaling that focus is shifting back to supporting economic activity away from the inflation fight."

Some analysts warn the Fed’s impact may be limited, as market sentiment remains hostage to White House policy risks rather than monetary adjustments alone.