For the last 35 years, the Federal Reserve Board’s tacit willingness to intervene in financial markets when stock prices start to swoon has provided an implicit floor for the equity market. It came to be called the "Fed put."

Starting with the 1987 stock market crash, continuing with the Thai baht and Long Term Capital Management crises in the 1990s and the housing crisis in 2008, market participants became comfortable with the assumption that Fed Chairman Alan Greenspan and his successors could always be counted on to come to the rescue when equity prices started to tumble.

Based on the central bank's behavior over the last 15 months, those days are over, Charles Schwab & Co. chief investment strategist Liz Ann Sonders told Jim Bianco yesterday at John Mauldin’s Strategic Investment Conference. She pointed to the stock market’s collapse last October and the Fed's indifference to it as evidence that Fed Chairman Jay Powell and his fellow governors had other priorities.

“The stock market was down 25% and there was no ‘Fed put,’ especially with inflation running hot,” Sonders said during an interview with macro strategist Bianco.

Both Bianco and Sonders agreed it was always possible that, in the event of a serious banking crisis or a nasty recession, that the Fed could revert to its old-time habits. But they also concurred that the central bank was unlikely to easily accede to the stock market’s wishes for relief in the same fashion it did in previous situations, like the 2013 taper tantrum or when falling stock prices short-circuited efforts by Powell, then recently confirmed as chairman, in 2018 to normalize interest rates.

Asked by Bianco whether the Fed would change its 2% inflation target if the rate falls below 4%, as he expects, by July, Sonders said it would not do so “explicitly.” She added that she thinks inflation will continue to fall. “But getting to 2%, which is somewhat arbitrary, could take time,” she said.

Bianco agreed. Powell “can’t change his target now” with inflation at 4% or 5% or “he would be completely discredited,” he maintained.

For her part, Sonders observed that, when it came to the disconnect between the Fed and the financial markets expecting a reversal in monetary policy ‘in short order,” the Fed is likely to keep rates higher for longer than market participants are hoping.

“The Fed put has been put to bed given what we’ve seen,” she said. “Financial market weakness is not the Fed’s problem.” Structural systemic weakness would be a different story, she said.

When Bianco asked her about the strength of the labor market, Sonders said it might not be as strong as it appears. Sales of homes and autos already are experiencing recessions of their own, although the service sector is keeping the economy going.

Like Ed Yardeni, another participant at Mauldin's event, Sonders reiterated that the U.S. may be experiencing a "rolling" recession driven by a cycle of shifting phases of the pandemic and post-pandemic economies. One major difference this time is that, at companies that are downsizing workers, layoffs are starting at the top levels of management.

In past slowdowns, lower-level workers have been among the first to go. Now entry-level employees are hard to find and many have multiple job options.