Intervention by central banks as global stocks plummet?

Central banks potentially stepping in to rescue markets amid the customs crisis – will they implement the so-called 'Fed-Put' strategy, or is it time for investors to dump their stock portfolios?

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2025 May 13 . 11:49 PM

2 min read

Central Bank Intervention and the 'Fed-Put' Hypothesis: When Might this Monetary Strategy Prevent... — Central Bank Intervention and the 'Fed-Put' Hypothesis: When Might this Monetary Strategy Prevent Market Collapse Amidst the Trade Crisis? Should Investors Liquidate Their Share Portfolios or Anticipate Central Bank Intervention?

Intervention by central banks as global stocks plummet?

Riding the Market Storm: Can the Fed-Put Save the Day Amidst Tariff Chaos?

The financial world is in turmoil. The initial trigger? The U.S.'s tariff announcements. China's retaliation with tariffs of their own has only intensified the situation. Here's a deeper dive: German Stocks: A Brutal Plunge due to China's Counterattack: What's the Next Move?

But there's a silver lining for stock traders: the revered "Fed-Put" might be on the horizon.

The Fed-Put: What's the Big Deal?

Ever heard of the Fed-Put? It's like the relief valve of the financial markets. When the U.S. Federal Reserve (Fed) steps in to stabilize the market during turbulent times, be it by slashing interest rates or undertaking bond-buying programs, it's all part of the Fed-Put. This term is borrowed from options trading, where a put option acts as a safety net against plunging markets. Investors trust the Fed to intervene in severe market downturns, limiting the fall in prices. Time and again, the Fed has come to the rescue - after Black Monday in 1987, during the 2008 financial crisis, and even during the COVID-19 crash in 2020. However, the Fed's intervention carries a double-edged sword. On one hand, it helps stabilize the markets; on the other, it can instigate market distortions and inflate asset prices artificially[6].

When Can We Expect the Fed's Intervention in the Stock Market?

Golo T. Kirchhoff, an expert at BÖRSE ONLINE and author of the popular stock service "Das Kirchhoff-System", suggests that if the Nasdaq plummets below 17,400 points, trading might be suspended, followed by an emergency response from the U.S. Federal Reserve[7].

Kirchhoff's reputation precedes him. Since February 20, Kirchhoff has warned his subscribers about the market's impending crash and advised exiting the market.

So, should investors hope for a Fed-Put and a market recovery? It's not here just yet. Building a cash position and staying patient is the best strategy for now. Panic selling isn't necessary[7].

And for more insights: Morgan Stanley's Secret Sauce: These Stocks Stand to Benefit from Tariffs

Investors might find solace in the potential application of the Fed-Put in the current stock-market turmoil, as the U.S. Federal Reserve could intervene to stabilize the market, similar to past instances like the 1987 market crash, 2008 financial crisis, and the COVID-19 market downturn. However, finance experts suggest that a significant drop in the Nasdaq, such as below 17,400 points, may trigger an emergency response from the Fed, potentially leading to a market recovery. Investing astutely in selecting stocks that could benefit from tariffs, like those recommended by Morgan Stanley, could also provide a strategic approach.