US stocks (^DJI, ^GSPC, ^IXIC) tumbled after Federal Reserve Chair Jerome Powell signaled he expects US President Donald Trump's tariffs to lead to higher inflation and lower growth. Yahoo Finance Senior Federal Reserve Reporter Jennifer Schonberger breaks down what Powell said.
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The Fed chair reiterating that the central bank wants to wait for further clarity on President Trump's policies before determining what the right course of interest rates will be. Though he said that he expects effects from tariffs could move the Fed away from its dual mandate goals of price stability and maximum employment this year. Take a listen.
Inflation is likely to go up as tariffs find their way and some part of those tariffs come to the um, come to be paid by the, by the, by the public. So that's the strong likelihood. And you know, my hope is that we'll, we'll, we'll get through this and get back. But we're always going to be aiming for maximum employment and price stability. That's what we do. I do think we'll be moving away from those goals probably for the balance of this year.
Though Powell underscored that the central bank may find itself between a rock and a hard place as he expects higher inflation from tariffs and lower growth and potentially higher unemployment. And as the Fed has a dual mandate for maximum employment and price stability, the Fed may have to choose which one they have to focus on. Though the Fed chair did stress that it is important to have price stability in order to have a strong job market for any lengthy period of time. Now, the Fed chair also stressed that it is up to the central bank to keep long-term inflation expectations in check and to ensure that any inflation that comes from tariffs is not more than a one-time increase and wouldn't be longer lasting. The Fed chair brought up the example of the shortage of semiconductors during the pandemic when so many people were demanding cars and how at first, the central bank thought that perhaps that would be transitory. That ended up being longer lasting and he worries now with the current tariffs in place for cars that we could see potentially longer lasting inflation there. So, implying that the central bank seems to be more concerned about inflation and may have to focus on that at the behest of potentially a weakening job market. Now, separately, he was asked about the markets given all the volatility we've seen in both the stock and bond market and whether the Federal Reserve could come in as that white knight. Take a listen.
Some people believe the Fed will intervene if the stock market plummets, the so-called Fed put. Are they correct?
I'm going to say no with an explanation.
And as for the functioning of the bond markets and what may be happening there, Fed chair Powell chalked that up to a unique moment in history that bond markets are trying to process. He says it's really hard to know what the actual cause of all of the swoons and volatility is, though he suspects it's merely deleveraging by hedge funds. Josh.
Thank you, Jen.