Are tariffs forcing the Fed into a corner?
Markets shaken by US tariffs found little relief as Federal Reserve chair Jerome Powell delivered remarks that investors interpreted as more hawkish than expected, further dampening hopes of near-term interest rate cuts.
Speaking at the Economic Club of Chicago, Powell indicated the central bank is in a difficult position, contending with tariffs that may drive up inflation even as economic growth slows. He signalled that the Fed would await further economic data before altering its policy stance, avoiding any commitment to rate reductions.
Investors had hoped for more dovish commentary following weeks of market volatility sparked by president Donald Trump’s broad April 2 tariff announcement. Instead, Powell acknowledged that the tariffs could push prices higher and lead to decreased business investment and rising unemployment.
Michael Arone, chief investment strategist at State Street Global Advisors, highlighted in his comments to Reuters that markets were expecting Powell to lean towards easing monetary policy. “And he didn’t provide it,” Arone said.
S&P dips further on Fed signals
The S&P 500 fell 2.2% on Wednesday, extending its losses to 14% since its February record high. The Nasdaq Composite slid 3.1%, led by a sharp decline in technology stocks. Nvidia was among the hardest hit after it warned of major financial hits from new US restrictions on chip exports to China.
Powell also addressed the idea of a so-called “Fed put”—the expectation that the central bank will act to cushion markets during major downturns. When asked directly, Powell denied the existence of such a guarantee, while asserting that markets remain functioning and orderly despite heightened volatility.
Sam Stovall, chief investment strategist at CFRA Research, said Powell’s comments could be read as a warning: “Don’t necessarily rely on the ‘Fed put,’ meaning, don’t rely on the Fed to sort of bail us out of this situation.”
Fed walks tightrope
Investors remain uncertain about how the Fed will respond to the evolving economic landscape, especially as trade tensions between the United States and China escalate and global supply chains face renewed pressure. While rate cut bets persisted—with some traders expecting reductions starting in June—Powell’s reluctance to commit to action left markets on edge.
Mark Malek, chief investment officer at Siebert Financial, said Powell’s remarks acknowledge the complexity of the Fed’s dual mandate to maintain stable prices and full employment. “They need to keep unemployment low and prices down, and now both sides of the coin are going the wrong way for the Fed,” Malek said.
