Jerome Powell warns Trump tariffs could put Fed in challenging scenario as US stocks tank

Stocks tanked after Federal Reserve Chair Jerome Powell said President Trump’s surprisingly stiff tariffs could keep inflation higher for longer than previously expected — forcing the central bank to keep interest rates high.The nation’s top central banker on Wednesday said Trump’s new wave of trade taxes are “significantly larger than anticipated,” adding that “the same is likely to be true of the economic effects, which will include higher inflation and slower growth.”“Avoiding that outcome will depend on the size of the effects, on how long it takes for them to pass through fully to prices, and, ultimately, on keeping longer-term inflation expectations well anchored,” he continued.Investors ran for the exits after Powell spoke, with the Dow Jones Industrial Average tumbling nearly 900 points, or 2.2% in late-afternoon trades.The S&P 500 and Nasdaq dropped 3.1% and 4.4%, respectively.Powell added that the tariffs threaten to pose a “challenging scenario” that could force central bankers to choose between tamping down inflation and propping up the labor market.“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Powell said in prepared remarks at the Economic Club of Chicago, his second public speech since Trump unveiled the tariffs on April 2.The president’s hefty trade taxes – a staggering 145% rate on Chinese goods, and a temporary 10% tax on most other nations while final rates are negotiated – could make it trickier to realize the Fed’s 2% inflation goal while keeping the labor market strong, according to Powell.In March, the Fed projected two interest rate cuts in the second half of this year.

That prediction came before the president unveiled his so-called “reciprocal” tariffs, which included harsher-than-expected rates on many nations.Powell reiterated that the central bank does not need to rush to change policy as of yet – especially as the back-and-forth nature o...