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 their hopes on Chair Jerome Powell’s guidance.

On March 19, the Fed will announce its latest 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, but recent data has muddied the outlook:

• 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 reassess growth risks. Notably, consumer confidence has deteriorated, with the University of Michigan’s March consumer sentiment index falling for a third straight month to a two-year low.

Morgan Stanley analysts believe the Fed will maintain a "data-dependent" approach, reinforcing 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 key question is whether Powell will attempt to reassure markets amid the S&P 500’s 10% slide from recent highs—possibly through equity marketcommentary or dovish signals about rate cuts.

Mizuho Securities USA noted, “Powell needs to give some sort of a signal that they’re watching it.”  While Powell is likely to reiterate that the Fed doesn’t target stock prices , he also 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."

Despite the Fed’s influence, some analysts warn that monetary policy alone may not be enough to stabilize sentiment, as markets remain hostage to White House policy risks rather than Fed adjustments alone.