Powell’s warning: Tariffs to bring ‘Higher Inflation and Slower Growth’

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US stocks plummeted on Wednesday after Federal Reserve Chair Jerome Powell warned that President Donald Trump’s tariffs are unprecedented in modern history with “highly uncertain” effects. The Dow Jones Industrial Average tanked 700 points, or 1.73%, while the S&P 500 fell 2.24%, and the tech-heavy Nasdaq Composite dove 3.07%.

“The level of the tariff increases announced so far is significantly larger than anticipated,” Powell said at an event in Chicago. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”

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Powell’s comments echo concerns that have been brewing in recent weeks as consumers and businesses struggle to navigate Trump’s tariffs. In March, US retailers saw a surge in spending at the strongest monthly pace in over two years, as Americans rushed to beat Trump’s massive tariff hikes.

Some companies are feeling the pinch, like Nvidia, which slumped 6.87% after announcing a $5.5 billion hit due to new US government restrictions on exporting artificial intelligence chips to China. This move is part of the growing contest between the US and China for dominance in AI.

“While we expect that trade talks will ultimately yield progress, the brinkmanship between the US and China looks set to continue in the near term,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.

The Trump administration has been investigating imports of pharmaceuticals and semiconductor chips, potentially leading to more tariffs. Trump said he would announce a tariff rate on imported semiconductors soon, with some flexibility for certain companies.

Analysts at Citi expect extended market uncertainty, saying, “In the interim, if the recent flip-flopping around US tariffs and their implementation is anything to go by, the only certainty is that market participants will be forced to endure a period of extended market uncertainty.”

The World Trade Organization predicts global GDP growth will slow to 2.2% this year due to Trump’s trade war, 0.6 percentage points lower than expected without additional tariffs.

Meanwhile, gold prices surged over 3% to a record high above $3,300 per troy ounce, considered a safe haven amid economic turmoil. Goldman Sachs analysts raised their year-end gold price forecast to $3,700, anticipating continued demand amid the escalating US-China trade war

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