Federal Reserve Chair Jerome Powell suggested Wednesday that hopes the central bank will step in to tamp down on market volatility are likely misplaced.
Asked if the Fed would intervene to counter sharp declines in the stock market, Powell said "I'm going to say no, with an explanation."
"What I think is going on in markets is markets are processing what's going on, markets are struggling with a lot of uncertainty and that means volatility," Powell said in an appearance in Chicago.
Despite the tumult, "markets are functioning conditional on being in such a challenging situation, markets are doing what they're supposed to do, they're orderly and they're functioning just about as you would expect them to function" given the uncertainty.
The huge shift in trade policies pursued by the Trump administration — Powell referred to the new system as "the shock that we're experiencing" — have slammed financial markets. It has driven down prices for stocks and bonds while also depressing the dollar, an unusual mix of factors that suggests to some a move away from U.S. assets.
The level of selling, while the worst of it has abated, has raised questions about whether the central bank would need to intervene in some fashion to stabilize conditions. Such a move has precedent and the Fed has used various liquidity facilities and asset buying in the past to help put a floor underneath prices in times of severe stress.
Powell said it was understandable markets would have a hard time given the big changes happening due to President Donald Trump's tariff regime. He also explained it can be very hard to know what's causing the trouble in real time.
"I've had a lot of experience with significant moves, for example, in the bond market, where there's a narrative that people land on, and then two months later, you look back and go, that was completely wrong," Powell said. "So I think it's very premature to say exactly what's going on."
As it now stands, he said it appears some of what has been hitting markets is hedge funds cutting back on leverage, or debt, adding "you'll probably see continued volatility" for the time being.