Fed Chair Powell’s Speech Analysis: Tariffs, Trade War, And Inflation

Jerome Powell's Economic Outlook Amidst Rising Uncertainty

The 16th Chair of the Federal Reserve, Jerome H. Powell, stated at the Economic Club of Chicago that first-quarter growth is slackening because of the receded consumer spending. The economic upsurge appears to be falling behind. The Chair declared that the U.S. Federal Reserve will defer modifying the interest rates till the new economic policies of U.S. President Donald Trump give clearer signs.

Challenges Presented by Tariffs and Trade Policies

Powell stated that the tariffs can cause issues between controlling the price increase and economic development. He cited substantial uncertainties in trade tariffs, regulations, immigration, and tax policies. Trump’s wide-ranging set of tariffs has set the market in turmoil. This alternating tariff fear has led to the assumption that the Fed might propose rate cuts. Conceding the tariff, Powell stated “larger than the anticipated”. He also added that these policy changes are very fundamental and there is no modern solution for them, as of now. Powell iterated that high tariffs will push the economy towards slower growth, increased unemployment, and rise in price. These three factors will put forward a formidable and unprecedented challenge that the Federal Reserve has not faced in nearly 50 years.

Inflation and Economic Growth Outlook

“The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” he added. The Chair stated, “Despite heightened uncertainty and downside risks, the U.S. economy is still in a solid position.” cost escalation is under check but still slightly above the 2% annual target. His remarks confirmed the market's anticipation of interest rate cuts shortly.

The Fed's Focus Shifts to Employment and price increase Monitoring

The Chair added that “the cost escalation has significantly eased from its pandemic highs of mid-2022”. He pointed out the labour conditions 27 times, suggesting a changing focus for the Federal Open Market Committee, which has been emphasising inflation for over 2 years. It is being stipulated that Chairman Powell is reorganising the market for the new set of policies, but he remains unsure about the extent of inflation.

Rate Cuts and Market Speculation

The central bank leader stated that in case of higher inflation, the Fed will not alter the interest rates or increase them to fulfill the requirements. Markets speculate that the Fed will start reducing rates in June, according to CME Group’s FedWatch. Powell said that the effect of inflation could be long-lasting. The Fed is assigned to improve the employment rate and to keep inflation in check, but the Chair forewarned that Trump’s ‘reciprocal’ tariffs can make both goals susceptible. Powell is assured about the independence of the Fed’s decision from political pressure.

Stock Market Reaction and Impact on Cryptocurrencies

The US stocks dropped in the middle of Powell’s speech. The Dow fell 1.7% and the S&P 500 tumbled 2.5%. In the cryptocurrency market, Bitcoin dropped over 3% , while Dogecoin, Cardano, and Chainlink plunged more than 4%.