Potential Fed Intervention as Credit Spreads Widen

According to BlockBeats, Goldman Sachs analyst Lindsay Matcham suggests that if credit spreads continue to widen and the bond market prices in a recession, the Federal Reserve may be prompted to intervene. Typically, an increase in credit spreads can lead to difficulties in corporate financing and a weakening job market. If high-yield bond spreads expand to 500 basis points, Federal Reserve Chair Jerome Powell might change his policy stance, similar to his actions in 2018. Powell's stance last Friday was relatively firm, primarily because the recent stock market plunge was event-driven, and non-farm payroll data remained strong. Additionally, with tariffs potentially driving inflation higher in the future, Powell is cautious about using policy measures prematurely. Currently, high-yield bond spreads have reached 454 basis points, nearing the critical threshold of 500 basis points. The report indicates a 51% probability of a rate cut at the Federal Reserve's May meeting, suggesting that further adjustments in the bond market are necessary to prompt Powell to shift his policy stance, which could potentially lead to a stock market rebound.