(1/2) The Fed Is Waiting for Permission to Panic: What Powell’s Pause Really Means
⸻ Fed Chair Jerome Powell said the central bank doesn’t need to be “in a hurry” to adjust interest rates, adding: “There is so much we don’t know, we are in a good position to wait and see.”
At face value, this reads like policy patience. But beneath the surface, it’s a high-voltage signal that the Fed sees deep systemic fragility but is choosing not to move until something breaks. This is not prudence. It’s a containment strategy.
Let’s break down what’s really happening behind Powell’s words.
⸻ 1. Powell Is Not Signaling Strength. He’s Buying Time.
Despite the appearance of calm, the macroeconomic internals are flashing red:
•Consumer delinquencies are rising across credit cards, auto loans, and prime mortgages.
•Commercial real estate (CRE) markets are seizing up as 7–8% interest rates collide with massive debt rollover cliffs.
•Regional banks remain on edge particularly those still sitting on unrealized losses from 2020–2021 duration bets.
•Private credit and shadow bank liquidity are thinning rapidly, with widening spreads and reduced risk appetite.
•UST market depth remains fractured; long-end liquidity is still artificial, as the Fed quietly backstops with $1.6T in long bonds it refuses to sell. This is the context in which Powell says he wants to “wait and see.”
⸻ 2. The Fed Is Not Data-Dependent. It’s Fragility-Dependent.
In theory, Fed policy is supposed to respond to incoming economic data. But that’s no longer true in practice. In today’s system, the Fed is reacting to fragility, not inflation. Why?
Because one wrong move cutting too early or too late could:
•Trigger a bond market revolt and spike long-end yields,
•Accelerate de-dollarization narratives abroad,
•Unleash another banking panic or shadow liquidity crisis. The Fed knows the credit cycle is breaking down. But it also knows that cutting rates now could signal panic, undermine inflation-fighting credibility, and reignite asset bubbles. So it waits. Not out of confidence. But because it has no other choice.
⸻ 3. The Real Strategy: Delay Until a Shock Justifies Action What Powell is doing is familiar.
It’s a replay of:
•2007: Bernanke said housing was “contained” weeks before the first emergency cuts.
•2019: Powell downplayed repo stress before $100B/day liquidity injections.
•Feb 2020: Powell said there was no need for cuts then executed a 50bps emergency cut two weeks later. This is the same blueprint: Say nothing is wrong until something breaks badly enough to justify abandoning the script.
Expect Powell to stay in “wait-and-see” mode until the following trigger conditions are met:
•A regional bank seizure or multiple small bank insolvencies,
•A failed or distressed Treasury auction (i.e., rising bid-to-cover ratios, foreign pullback),
•A derivatives market freeze (e.g., in CLOs or private credit structures),
•Political cover via energy price spikes, geopolitical conflict, or a surprise fiscal shock.
4. What Powell Can’t Say Out Loud
If Powell said what he knows, it would sound something like this: “We see stress building across the banking sector, commercial real estate, and private credit. But cutting now would spark a selloff in the dollar and long-duration bonds, so we’re holding until something snaps and gives us political and market cover.”
Instead, he says: “There’s so much we don’t know.”
But in reality, they know quite a lot. And it’s bad.
⸻ 5. The High-Conviction Takeaway
The Fed’s pause is not a sign of confidence. It’s a sign of constraint.
The central bank is cornered unable to tighten further without breaking the system, but unwilling to ease for fear of triggering inflation panic or appearing politically compromised.
Powell’s job now is to preserve the illusion of control long enough to shift the blame when the crisis arrives. This isn’t a pivot. It’s pre-trauma triage.
⸻ Known Unknowns:
•Will the Fed pre-emptively cut if high-yield credit markets seize up before regional banks collapse?
•Is there coordination with Treasury or the FDIC to stage-manage the next liquidity shock?
•Are foreign central banks (e.g., Japan or China) preparing to dump Treasuries forcing the Fed to defend the curve instead of stimulating growth?
⸻ Final Word: When Powell says “we don’t know,” it’s not a confession of ignorance. It’s a strategic delay. The Fed is not waiting to learn more it’s waiting for permission to panic.
Stay sharp. The silence at the Fed isn’t calm. It’s pressure building.
So the Fed stays pause and plays the 'wait and see' game for a number of reasons:
1. Cutting rates now tantamount to admission that the US economy is in trouble, and that spells trouble for the US dollar at its point of fragility. A run on the dollar could see USTs being sold down and jacking up long term rates
2. Doing nothing and staying pat gives no cause for Trump to abandon worries over the bond market, so he should behave himself from getting overboard with tariffs again, cutting could further embolden him
3. The Fed knows tariffs will mean higher inflation, and there is 90% chance Trump will not abandon his tariffs, so inflation will perk up and therefore no compelling reason to cut in the very near term
4. The Fed probably believes high risk of recession, so why waste rate cut bullets now, leaving more monetary policy accommodation ahead when the shock arrives
5. Cutting rates is less compelling as even the stock market is no longer falling and rising when it should not
6. Staying pat gives the market the impression that the Fed has semblance of control- perception is all important in the financial markets- the bond vigilantes are watching.
