(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Jamie McGeever

ORLANDO, Florida, March 13 (Reuters) - Every time a Wall

Street selloff snowballs, fear of an avalanche revives talk of

the "Fed put". The correction underway now is no different, but

the bar for the central bank to provide the market a backstop is

now likely a high one.

The notion of the Fed put - the idea that the Federal

Reserve will prop up falling asset prices with monetary easing

or other tools - took root in the Alan Greenspan era (1987-2006)

and has been embedded in investor psyche ever since.

Part of the Fed's mandate, of course, is ensuring financial

stability, so, in a sense, the Fed put has always existed and

can always be used. The Global Financial Crisis of 2007-09 and

the pandemic in 2020 are two examples of the Fed put in action.

As strategists at HSBC ( HSBC ) point out, the Fed put doesn't have

to be emergency rate cuts or QE. Adding a line in its policy

statement that financial conditions have tightened considerably,

for example, could calm the horses.

The current selloff is obviously nothing like those crises.

But that hasn't stopped speculation that further declines could

soon get the Fed's attention, with the Nasdaq now deep in

correction territory - 10% or more below the previous peak - and

the S&P 500 flirting with it.

There is good reason to be vigilant. The Trump

administration's chaotic trade policy agenda is generating huge

uncertainty for consumers, businesses and investors, and causing

recession risks to rise.

Some $5 trillion has been wiped off the value of U.S. stocks

in less than a month, led by steep declines in Big Tech. The

Roundhill equal-weighted 'Magnificent Seven' ETF is down 20%

from its December peak.

Given the concentration of stock ownership in the hands of

the country's richest income decile, who now account for a

record 50% of all consumer spending, weakness on Wall Street

could quickly rip through the wider economy.

Policymakers will also be paying close attention to

financial conditions, which are now the tightest in nearly a

year, according to Goldman Sachs's ( GS ) financial conditions index.

This tightening is almost entirely due to the equity slump.

OUT OF THE MONEY

But the wider economic environment strongly suggests markets

will have to fall much further or faster before triggering a

policy response.

While volatility across equities, bonds and some key

currency pairs is the highest in months and rising, it remains

significantly below levels typically associated with past market

crises.

The same goes for credit spreads. U.S. high-yield spreads

widened beyond 300 basis points this week for the first time in

six months, but that's still miles below the spreads of 800, 900

or even 2,000 bps witnessed over the last few decades.

Liquidity also still seems, to coin a Fed term, ample. There

are no gapping prices in key markets, trades can be executed

smoothly, there is no sign of stress in funding markets, and the

corporate bond primary market is still open for business.

What's more, a market or economic downturn may not be as

deflationary as previous slumps because any downturn now would

likely be driven partly by the import tariffs President Donald

Trump is threatening to impose - and tariffs risk increasing

prices while hindering growth. A tumbling stock market and

'stagflation' would be extremely awkward for the Fed and

potentially tie its hands.

Strategists at HSBC ( HSBC ) reckon the strike price of any policy

put - from the Trump administration or the Fed - is probably

"some ways off still". The S&P 500's average downturn from peaks

is 14%, and even then it still usually ends the year higher with

no Fed put. The market is currently 10% off its peak.

According to Treasury Secretary Scott Bessent, there is no

"Trump put", and the president himself said last week he's "not

even looking at the market." The Trump administration appears

willing to let asset prices fall and growth slow as part of the

"detox period" or "transition" towards a more private

sector-based economy.

Strategists at Morgan Stanley ( MS ) argue there's a "much greater

likelihood of a Fed Put than a Trump Put," contrasting Trump and

Bessent's statements with Chair Jerome Powell's recent remarks

that the Fed has tools to deploy in case of extreme economic

stress.

That is probably true. But the strike price might be lower

than many investors would like.

(The opinions expressed here are those of the author, a

columnist for Reuters.)