The stock market's recent correction has been driven by a number of factors: Increased fears of a hard landing and near-term recession due to Powell's Federal Reserve falling behind the curve with interest rate adjustments, The shift into a tightening regime at the Bank of Japan, sparking a sharp rally in the yen versus the dollar, triggering a pinch for the yen carry trade, which funnels massive streams of leverage into the financial system powering the risk trade across asset classes, Concerns about the reliability of future estimates for AI chip sales, particularly in terms of timing, driving further concerns about a cyclical downturn in the chip space, The standard refrain of valuation fears often seen after momentum stalls following a strong bull market rally. And these are all valid reasons for caution for investors over-exposed to the stock market. But, amid them all, there is one cure-all that hangs over the head of bears: The return of "the Fed put". Where is R* R* (or R-Star) is the neutral interest rate level for policy makers. If policy is right at R-Star, then it is neither restrictive nor overly supportive. It's the North Star for central bankers to sail toward—never getting quite there, but always pursuing that objective. And, typically, there is no time when a major central bank will knowingly state that R-Star is at a far different place than the bank's current policy level. If they were in a position to say that, then logically, that would be accompanied by a follow-up statement something along the lines of, "which is why we are adjusting our policy rate today." However, right now, the Fed is sitting at 5.25-5.5% Fed Funds. And yet, basically everyone, including Powell, admits that the neutral rate is probably somewhere between 3-4%. Bill Dudley, a former Fed member, came out earlier this week and said that everyone agrees the neutral policy rate is somewhere between 2.4% and 3.8%. That's a wide range, but still the current Fed is miles away from even being close to the top-most part of this range. In other words, the Fed could come out and cut by 100 basis points in an emergency move tomorrow, and then cut by another 75 basis points at the September meeting, and then cut by another 50 basis points at the November meeting. And they would still probably have room to cut further before being too accommodative. The Fed Put That "room to cut without penalty" is the ultimate ammunition for the Fed to hint at in between-the-lines messaging if we see further volatility that threatens to stain the overall sense of market stability in the current context. This hinting or messaging is backed up by real firepower these days, unlike what we saw from the Fed in the years following the Global Financial Crisis, when all they could do was push on the proverbial string with an increasingly impotent project of QE. Rate cuts are the meat and potatoes of monetary policy support. The Fed Put is the threat of that meal looming over the market every time we face a bout of sudden crashy volatility. This is our current context. The Fed has yet to be overt with its threats of action in the face of market instability. But it has tons of room to enter this dance on any further volatility. Typically, what we have seen in the past as a first step is a statement from the Fed chair that runs something along the lines of, "The Federal Reserve stands ready to provide support should financial market stability remain potentially damaging to the prospects of the real economy." Something like that. It's code for, here come the cuts. Hard Landing? Much of the current spate of instability in financial markets stems from the sense that recent economic data has hinted that we are starting to potentially enter the inflection, or the curve, from sustainable growth toward contraction or recession. This backed up last week's Jobs report, which triggered an instance of the Sahm Rule (when the three-month moving average of the unemployment rate rises by half a percentage point or more from its lowest level over the past 12 months), suggesting the US economy may already be in the beginning of a recession. It was also backed up by the ISM Manufacturing reading, which printing a sub-47 score, showing deep contraction, and the jobless claims number, which came in at nearly 250k for the preceding week—a new 52-week high. The important thing to note in all of these data points is that such a string of data could clearly occur in a perfectly healthy and sustainable growth environment and go down as a blip. As the old saying goes, economists have predicted 9 of the last 4 recessions. But—and this is the Big "but"—current rates are 200 basis points above a neutral level while three-month annualized core PCE is right dead at the Fed's 2% target and the labor market is clearly softening. The question to think about is this: how long can this economy survive being kept in the freezer before it starts to die? Policy is clearly overly restrictive. That has consequences. The Fed knows all of this. It has simply decided to wait as long as possible to adjust because it wants to make absolutely certain that all of the viral inflation pathogens have been frozen dead before it starts to turn the heat back on. So far, we have faced no penalty. But experienced analysts and market participants know soft landings are so rare precisely because the timing is difficult. If you wait until you see the racetrack start to curve before turning the steering wheel, you're going to slide into the wall and crash. That turn has to be anticipatory. Conclusion Even with the very real threat of a potential hard landing this winter, the more immediate, and likely more dependable, threat is that of the mobilization of the Fed put. This consists of the Fed making it very clear that it will not tolerate financial market destabilization as a risk to its current economic outlook; not when it can act without penalty again and again through meat-and-potatoes policy accommodation and still be above R-Star. Just the mere awareness of this dynamic is likely a very supportive factor for markets. The Fed has tons of ammo—more than it has had in nearly two decades. And recent data strongly suggests it is no longer under the inflation gun. All that's left is for the market to test its will.