TOKYO – Asian markets have an ace in the hole as a tumultuous 2025 comes to a close: Jerome Powell.
On Thursday, the region’s stock bourses rose again, extending the week’s global rally, amid widespread expectations that US Federal Reserve Chair Powell and his fellow board members will cut rates on December 10.
The Fed’s announcement of a third successive easing move, the thinking goes, would allay fears that valuations are overstretched amid the AI boom. Yet is Asia’s faith in the so-called “Powell put” overdone?
It may indeed be given the unusually wide range of opinions on the economy among Fed officials – and extreme uncertainty about what lies ahead.
The reference here is to a phenomenon that dates back to the Alan Greenspan-era Fed. In the late 1990s and early 2000s, then-Fed head Greenspan routinely stepped in to rescue markets.
It was the “Greenspan put” that saved the day amid the 1997-98 Asian financial crisis, the 1998 Russian default and the tech stock crash at the start of the new millennium.
Since then, each successive Fed leader has had their “put” moment. Ben Bernanke’s 2006-2014 tenure even saw the Fed go the quantitative easing route. His successor, Janet Yellen, found herself fending off the so-called “bond vigilantes” during her tenure as chair from 2014 to 2019. And now, it’s the “Powell put” that has Asia in a whirl.
Global investors’ perception that Powell has their back dates to 2019, when, in just a few months’ time, he pivoted from monetary hawk to dove. The optics weren’t great, as many worried Powell’s change of heart was related to US President Donald Trump’s demands for lower rates.
In 2025, Trump went all-in on intimidating the Powell Fed, including firing the Fed chair he picked in his first term in 2018. Team Trump has also gone after a Fed governor on vague accusations of mortgage fraud. The unprecedented intensity of political meddling confronting the Powell Fed will color any decision it makes on rates over the next few weeks.
There are valid worries that the US job market is slowing. But there are equally valid concerns that, with US inflation running at 3% and Trump’s tariffs putting upward pressure on global prices, a rate cut now could do more harm than good. That’s especially so if bond investors push up long-term yields amid inflation fears.
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Such a dynamic would deaden the benefits of Fed easing. Worse, arguably, it would suggest that a Trumpifed Fed has lost global credibility. This could have dramatic implications for the US dollar and US Treasury securities at the core of the global financial system.
For now, though, Asian markets are betting the Powell put will delight global investors in the next two weeks and beyond as markets price in even more moves into early 2026 — just as Trump desires.
Speaking in Santiago, Chile, on November 21, New York Fed President John Williams signaled that recent data, including employment trends, pave the way for more rate cuts.
“I view monetary policy as being modestly restrictive, although somewhat less so than before our recent actions,” he said. “Therefore, I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral, thereby maintaining the balance between the achievement of our two goals.”
That’s music to Trump’s ears, of course. And, perhaps, officials at the People’s Bank of China in Beijing, too.
The more the Fed eases, the more latitude the PBOC might have to cut rates to address China’s deflation. If the PBOC were to cut rates now, the floor could fall out from under the yuan, angering Trump’s White House.
For the Bank of Japan, Fed rate cuts could tame the yen’s weakness. Thanks to a weak exchange rate, Japan is importing inflation at an alarming rate. Risks cut both ways, of course. In the July-September period, the Japanese economy shrank 1.8%, much steeper than expected.
Given the contraction, it “would be misguided for the BOJ to decide to raise interest rates” in December, says Credit Agricole economist Takuji Aida.
In the days since then, San Francisco Fed President Mary Daly said she sees room “for a further adjustment in the near term.” Though Daley isn’t currently a voting member of the Federal Open Market Committee, she and Powell are often of similar minds.
As economist Joseph Gagnon at the Peterson Institute for International Economics think tank explains, both Williams and Daly “came out in pretty clear support of a rate cut.” Both are centrists often aligned with Trump, and their comments make things less “up in the air.”
Evercore ISI economist Krishna Guha adds that “at a minimum, Williams’ intervention signals that the Fed leadership has not given up on a cut. But we think it is reasonable, though not certain, to read it as more than that.”
Dallas Fed President Lorie Logan speaks for many when she says that “with two rate cuts now in place, I’d find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly.”
Though not currently a voting FOMC member, Logan’s point is worth considering in the context of the central bank’s dual mandate. The first half — full employment — had gotten far more attention this year than the second — price stability. The risk is that 3% annual price increases become ingrained.
“The Fed is between a rock and a hard place,” says University of Maryland economist Peter Morici. “If it stands pat, it lets a tough jobs market fester. If it goes through a rate-cutting cycle, it risks making 3% inflation the new normal.”
Consequently, he adds, even as the Fed lowers interest rates, a 10-year Treasury rate that’s the sum of long-term expected inflation and economic growth — or 4.5% to 5% — is likely the new normal. And the Fed can’t fix the structural challenges artificial intelligence is causing in labor markets.”
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It’s worth noting, too, that the US economy is holding up better than many feared amid Trump’s tariffs. It’s hardly booming, but the 3.8% year-on-year increase in gross domestic product in the third quarter is hard to ignore. That was the fastest rate of expansion since the third quarter of 2023.
Nor is US employment a disaster. While the government shutdown has wreaked havoc with data releases, applications for weekly unemployment insurance don’t suggest a sharp weakening.
And employers adding 119,000 new jobs in September suggests that things are “on balance, a little better than expected, reassuring those Fed officials worried about the downside risks to the labor market,” says Paul Ashworth at Capital Economics. “We now expect the Fed to delay its next rate cut until January.”
Of course, the AI bubble inflating in real time could give Powell pause. After all, it was the “Greenspan put” that helped boost valuations higher as the 1990s progressed.
“We see a growing risk that the imbalances that built up in the 1990s will become more visible as the AI investment boom extends,” warns Goldman Sachs analyst Dominic Wilson. “There have been echoes of the inflection point in the 1990s boom lately.”
Back then, as corporate profits peaked around 1997, moral hazard risk had spread to virtually all asset classes.
“Profitability peaked well before the boom ended,” Wilson notes. “While reported profit margins were more robust, declining profitability in the macro data in the later years of the boom came alongside accelerating equity prices.”
Only time will tell if today’s performance by Nvidia, Alibaba and other AI-related companies can be sustained. But at Fed quarters in Washington, it’s decidedly unclear whether officials will ride to the rescue yet again.
Follow William Pesek on X at @WilliamPesek
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