The USFederal Reservechair, Jerome Powell, warned Donald Trump’s tariffs were generating a “challenging scenario” for the central bank and were likely to worsen inflation.Powell’s comments on Wednesday came US stock markets had already been rattled by a new trade restriction on the chip designerNvidia. The sell-off picked up as Powell spoke to The Economic Club of Chicago.The S&P 500 index ended the day down 2%, the tech-heavy Nasdaq index fell 3% and theDow Jonesdropped 1.7%.“The new administration is in the process of implementing substantial policy changes in four distinct areas: trade, immigration, fiscal policy and regulation. Those policies are still evolving, and their effects on the economy remain highly uncertain,” said Powell.Powell said theUS economywas well-positioned but added that Trump’s tariffs were likely to cause “at least a temporary rise in inflation. The inflationary effects could also be more persistent.”Nvidia, the California company at the heart of the revolution in artificial intelligence technology, lost billions of dollars from its market value at the opening bell, with its shares down 8.5% by early afternoon.‘The sky won’t fall’: China plays down Trump tariff risks as stock markets rallyRead moreThe sell-off, which has spread to semiconductor makers in Asia and Europe, comes after Nvidia said the Trump administration hadrestricted the sale of its H20 chip in Chinaby means of new licence requirements.The company now expects to report a $5.5bn (£34.1bn) hit in its financial quarter that ends on 27 April, covering the cost of licences for its stock of the chips and associated sales commitments.The US restriction will also hit the MI308 processor made by rival chip business Advanced Micro Devices (AMD). Its shares dropped 6.5% as it expects to take a charge of as much as $800m because of the new rule.In Asia, South Korean semiconductor businesses such as Samsung Electronics and SK Hynix fell by about 4% overnight, and the Taiwan Semiconductor Manufacturing Company (TSMC) dropped 2.5%.Meanwhile in Europe, shares in semiconductor tech firm ASML fell 5.2% as its chief executive, Christophe Fouquet, said tariffs had “increased uncertainty in the macro environment”. The Dutch company, which produces lithography machines used to make chips, also reported orders of €3.94bn in its first financial quarter, about €1bn less than investors had expected.So far the chip industry has been exempt from the 10% tariffs imposed by the US since 2 April. The US government has historically built up regulations to limit Chinese access to advanced chips – including under Joe Biden as it raced for supremacy in AI. But the Trump administration has beenpaving the way for more levies on the sector.Global stocks were also hit by a warning from the World Trade Organization. It said Trump’stariffs will send international trade into reverse this yearand depress global economic growth. While the WTO had previously expected goods trade to expand by 2.7% this year, it now forecasts a 0.2% decline.skip past newsletter promotionSign up toBusiness TodayFree daily newsletterGet set for the working day – we'll point you to all the business news and analysis you need every morningEnter your email addressSign upPrivacy Notice:Newsletters may contain info about charities, online ads, and content funded by outside parties. For more information see ourPrivacy Policy. We use Google reCaptcha to protect our website and the GooglePrivacy PolicyandTerms of Serviceapply.after newsletter promotionThere were some more positive indicators across the market, with a 1.4% rise in US retail sales in March being higher than expected. It compared with a 0.2% gain in February, according to the US Census Bureau, though this could suggest consumers were snapping up goods before the implementation of tariffs.Oil prices also rose on Wednesday amid hopes of trade talks betweenChinaand the US, and following a report that Iraq plans to cut oil production in April. Brent crude rose by 84 cents, or 1.3%, to $65.49 a barrel, while US crude rose by a similar amount to $62.12 a barrel.If there are trade talks with China, they will involve the country’snew international trade negotiator. Beijing unexpectedly announced on Wednesday that Li Chenggang will take over the role from the veteran trade tsar Wang Shouwen. No reason was given for the change, although it came amid a broader reshuffle in Chinese government.In the US,California has launched a legal challenge to Trump’s tariffs, accusing the president of overstepping his authority and threatening trade in the state. The lawsuit was brought by California’s governor, Gavin Newsom, and its attorney general, Rob Bonta.Also on Wednesday, Trump posted on his social media platform Truth Social that he would attend a trade meeting with Japanese officials and his cabinet secretaries.“Japan is coming in today to negotiateTariffs, the cost of military support, and “TRADE FAIRNESS,” he wrote. “I will attend the meeting, along with Treasury & Commerce Secretaries. Hopefully something can be worked out which is good (GREAT!) for Japan and the USA!”Japan was hit with a 24% tariff rate on its exports to the US, though, like most of Trump’s “reciprocal” tariffs, this was paused for 90 days last week. However, a 10% universal rate remains in place, as well as a 25% duty on the sale of Japanese cars to Americans.
Fed chair says Trump tariffs could make inflation worse as US stocks slide further
TruthLens AI Suggested Headline:
"Federal Reserve Chair Warns of Inflation Risks from Trump Tariffs as US Stock Markets Decline"
The Guardian
7.9
TruthLens AI Summary
Jerome Powell, the chair of the US Federal Reserve, expressed concerns that the tariffs imposed by Donald Trump are creating a "challenging scenario" for the economy and are likely to exacerbate inflation. During his remarks at The Economic Club of Chicago, Powell noted that the stock markets were already under pressure due to new trade restrictions affecting the semiconductor industry, particularly impacting companies like Nvidia. Following Powell's comments, major indices experienced significant declines, with the S&P 500 dropping 2%, the Nasdaq falling 3%, and the Dow Jones decreasing by 1.7%. Powell emphasized that while the US economy remains well-positioned, the tariffs could lead to a temporary increase in inflation, potentially resulting in more persistent inflationary pressures in the future.
The fallout from the tariffs has already been felt in the semiconductor sector, with Nvidia's market value plummeting after the Trump administration imposed new licensing requirements on its H20 chips sold to China. This has caused Nvidia to forecast a financial hit of approximately $5.5 billion for its upcoming quarter. Similar challenges were reported by Advanced Micro Devices (AMD), which anticipates losses due to the new regulations. The repercussions extended globally, affecting semiconductor manufacturers in Asia and Europe, as companies like Samsung and TSMC reported declines in their stock prices. Amid these developments, the World Trade Organization warned that Trump's tariffs could reverse international trade growth this year, predicting a 0.2% decline in goods trade. However, there were some positive economic indicators, such as a 1.4% rise in US retail sales in March, suggesting consumer spending may be buoyed by pre-tariff purchases. California's governor has also initiated a legal challenge against the tariffs, claiming they overstep presidential authority and could harm trade within the state.
TruthLens AI Analysis
The article outlines the concerns expressed by Jerome Powell, the chair of the U.S. Federal Reserve, regarding the potential negative impacts of Donald Trump’s tariffs on inflation and the broader economy. Powell's warnings come amid a downturn in U.S. stock markets, particularly affecting technology firms like Nvidia, which has faced restrictions from the Trump administration. The economic implications of these tariffs, along with the uncertainty surrounding new policies from the current administration, create a complex scenario for investors and the economy.
Economic Impact of Tariffs
Powell's comments highlight a significant concern for the central bank: the possibility of rising inflation due to tariffs. This situation presents a challenge as the Fed navigates its monetary policy in response to evolving economic conditions. The potential for persistent inflation from these tariffs raises questions about future interest rate decisions.
Market Reactions
The stock market's negative reaction, specifically the declines in major indexes like the S&P 500 and Nasdaq, indicates investor anxiety over the impact of tariffs. Nvidia's stock drop illustrates how directly tariffs can affect specific sectors, particularly technology and semiconductors. The interconnectedness of global supply chains means that changes in U.S. trade policy can have far-reaching effects on international markets as well.
Uncertain Policy Landscape
Powell noted that the new administration is making substantial policy changes across various areas, including trade. The evolving nature of these policies adds a layer of uncertainty to the economic outlook, which could affect consumer and business confidence. The market's volatility reflects this uncertainty, as investors react to potential changes in fiscal and regulatory environments.
Public Sentiment and Perception
The article may aim to shape public perception about the economic risks associated with tariffs and the current administration's policies. By emphasizing the potential for increased inflation and market instability, it could be suggesting a need for caution among investors and the public regarding economic forecasts.
Trustworthiness of the Article
The information presented seems credible, drawing from authoritative sources such as Powell and observable market reactions. However, the framing of the situation could influence how readers interpret the data. The language used may evoke concerns about economic stability, which could be seen as a form of manipulation if it disproportionately emphasizes negative outcomes without presenting counterarguments.
Comparative Analysis with Other News
When compared to other articles discussing economic policies and market performance, this piece fits into a broader narrative about the challenges faced by the U.S. economy amidst political and trade tensions. There are likely connections to other news pieces focusing on tariffs, inflation, and stock market trends, suggesting a recurring theme in current economic reporting.
Potential Consequences
This news could influence public opinion regarding economic policy and impact stock market performance. Investors may become more cautious, which could lead to further market declines or volatility. Policymakers might feel pressured to reconsider tariff strategies to stabilize the economy.
Target Audience
The article appears to resonate more with businesses and investors concerned about economic stability and regulatory changes. It likely aims to inform stakeholders who are directly affected by trade policies and market fluctuations.
Global Power Dynamics
The implications of this news extend beyond U.S. borders, as trade policies affect global markets and relations. The discussion around tariffs and their economic consequences is relevant to ongoing debates about international trade and the balance of economic power. Regarding the use of artificial intelligence, it is possible that AI models were employed to analyze market trends or summarize Powell's statements. However, the article's narrative style suggests a human touch in conveying complex economic issues, with no clear indicators of AI-driven manipulation. In conclusion, while the article provides valuable insights, its framing may influence perceptions of economic risks and policy effectiveness, highlighting the importance of critical engagement with such news.