US stocks tumbled on Wednesday as investors were reminded of the costs President Trump’s tariffs will have for major companies and the challenges these policies may present for the broader US economy.
The market sell-off intensified in the final hours of trading as Federal Reserve Chair Jerome Powell delivered perhaps his starkest warning yet on the potentially stagflationary effects of Trump’s tariff policies.
Powell warned during a speech in Chicago of the “challenging” impacts from the uncertainty that has hit the economy, adding the central bank will “wait for greater clarity” before considering any interest rate adjustments.
These remarks both amped up the potential negative impacts from sweeping tariffs and took away the likelihood the Fed would be quick to cut rates should the economy slow.
Specifically, Powell warned tariffs “are highly likely to generate at least a temporary rise in inflation.” Adding, “The inflationary effects could also be more persistent.”
The benchmark S&P 500 (^GSPC) dropped about 2.2% while the Dow Jones Industrial Average (^DJI) shed roughly 700 points, or around 1.7%. The tech-heavy Nasdaq Composite (^IXIC) fell over 3% as the new chip provisions weighed on the tech sector.
Wednesday’s losses upset what had become a more stable environment for financial markets after the initial shock of “Liberation Day” sent markets reeling earlier this month.
These remarks came in the middle of what was already shaping up to be a negative day for US stocks, led by the tech sector.
AI chip leader Nvidia (NVDA) revealed late Tuesday night that new restrictions from the US government on its chip exports to China would result in $5.5 billion in charges. AMD (AMD) made similar announcement, saying the new provisions could cost the chipmaker up to $800 million.
Nvidia and AMD both fell about 7% on the day.
“What this comes down to is this continued level of uncertainty in the markets,” Sylvia Jablonski, Defiance ETFs CEO and CIO, told Yahoo Finance.
Policy uncertainty has been at the forefront of the recent market sell-off. Economists broadly expect these policies to boost inflation and slow economic growth.
To some, that combination leads to a clear result.
“Recession odds are climbing even further as Powell pushes back the timing of cuts,” Renaissance Macro head of economics Neil Dutta wrote in a note on Wednesday.
During the question-and answer-session at the Economic Club of Chicago, Powell was asked directly whether the Federal Reserve would intervene if the stock market continued to plummet.