Federal Reserve Chairman Jerome Powell signaled Wednesday that outsized Trump tariffs may create a "challenging scenario" for policymakers, with their dual mandate to control inflation and support employment in "tension." But he also said the Fed is in no rush to act. The Dow Jones and other major indexes extended Wednesday's intraday losses, led by Nvidia.
"The level of tariff increases announced so far is significantly larger than anticipated, and the same is likely to be true of the economic effects which will include higher inflation and slower growth," Powell said.
"We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension," Powell said in remarks before the Economic Club of Chicago. "If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close."
The Federal Reserve's dual mandate is to keep prices stable and employment high. Essentially, keep inflation low and growth high. A stagflation environment of high inflation and weak growth, or outright recession, is the possible paradigm for the U.S. economy.
Powell didn't tip his hand as to which way he was leaning: "For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance."
"Tariffs are highly likely to generate at least a temporary rise in inflation," said Powell. "The inflationary effects could also be more persistent."
He noted that auto supply chains will likely be disrupted for years as a result of President Donald Trump's huge global tariffs.
Fed chief Powell's prepared remarks were similar to prior comments he's made in recent weeks, though perhaps more somber.
Other policymakers have been mixed, with several wary about inflation. Fed Gov. Christopher Waller economic growth concerns are a higher priority for him.
Investors see only a 14% chance of a Fed rate cut at the May 6-7 meeting, but 71% odds of a cut by the June 17-18 meeting.
Stocks Plunge On Nvidia, Powell; Two Dow Giants Loom
Dow Jones, Stock Market Extends Losses
With Powell signaling no rush to cut rates, Wednesday's stock market rout deepened before paring losses somewhat the close. The Dow Jones fell 1.7%, the S&P 500 2.2% and the Nasdaq composite shed 3.1%.
Nvidia led Wednesday's market slide, as new U.S. export controls essentially end all AI chip sales to China. Nvidia stock dived 6.9%.
Please follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.
