Federal Reserve Chair Powell Signals Caution on Tariffs as U.S. Stocks Slide

Federal Reserve Chair Jerome Powell delivered a highly anticipated speech, addressing the economic fallout from President Donald Trump’s tariff policies. Powell’s comments showed the risks of higher inflation and slower growth, sending ripples through financial markets and raising concerns about the broader U.S. economy.

Powell’s Speech

Powell outlined several key points in his speech, emphasizing that the Trump administration’s tariffs—larger than anticipated—pose significant risks. He noted that these import taxes could lead to persistent inflation and have a more substantial economic impact than expected, potentially slowing growth. Powell stressed it was “too soon” to determine the appropriate policy path, stating the Fed is well-positioned to “wait for greater clarity” before adjusting interest rates. He also highlighted the need to prevent price hikes from becoming entrenched inflation, a concern given the Fed’s 2% target.

Notably, Powell’s remarks appeared unaffected by Trump’s earlier criticism, made just 10 minutes before the speech, where the President accused him of being “late” to cut rates. Trump’s comments followed a pattern of pressure, as seen in his April 4 post urging immediate rate cuts to capitalize on falling energy and egg prices and a strong jobs report. However, Powell maintained his focus on data-driven decision-making, sidestepping the political heat and reinforcing the Fed’s independence—a stance he has consistently defended.

SUMMARY OF FED CHAIR POWELL’S COMMENTS

1. Tariffs are bigger than expected and risk higher inflation, slower growth.
2. “Too soon” to determine appropriate policy path.
3. Fed well-positioned to “wait for greater clarity”.
4. Tariffs could have a persistent inflation impact.
5. Economic impacts of tariffs larger than expected.
6. Must ensure price hikes don’t lead to ongoing inflation

Impact on U.S. Stocks

Powell’s cautious tone rattled investors, who were already on edge due to the uncertainty surrounding Trump’s tariffs. U.S. stocks, which had been declining earlier in the day, extended their losses following the speech. The S&P 500, already in correction territory after a 10% drop from recent highs, saw further selling as Powell’s remarks dashed hopes of an imminent rate cut to offset tariff-related pressures. Investors fear that prolonged uncertainty and higher inflation could erode corporate profits, particularly for companies reliant on global supply chains. For instance, the electric vehicle sector felt the strain, with Tesla shares tumbling recently due to lowered expectations for its self-driving technology and market share.

Economic Implications: A Delicate Balance

The U.S. economy faces a challenging road ahead as Trump’s tariffs, projected to raise nearly $2.9 trillion in revenue over the next decade, threaten to reduce GDP by 0.7% before foreign retaliation. These tariffs, the largest tax hike since 1982, are expected to increase consumer prices, with inflation potentially rising by 0.3% through 2028. This inflationary pressure complicates the Fed’s mandate, as cutting rates to stimulate growth could exacerbate price increases, while maintaining or raising rates might deepen a tariff-induced slowdown.

The labor market, which added 228,000 jobs in March 2025, remains a bright spot, but tariff-related cost increases could lead to layoffs, particularly in import-dependent industries. Additionally, the tariffs are unlikely to shrink the U.S. trade deficit, as currency adjustments in countries like China may offset their impact, leaving American consumers to bear the brunt of higher costs. If foreign retaliation escalates, as seen with China’s recent tariff countermeasures, the economic drag could intensify.

Subscribe to Notifications