Federal Reserve Chair Jerome H. Powell delivered a cautionary message during his address at the Economic Club of Chicago, pointing to slowing economic growth and rising uncertainty driven by U.S. trade policy. He emphasised that the Fed would hold off on adjusting interest rates until President Donald Trump’s new economic policies offer clearer direction.
“The economy is losing steam,” Powell stated, citing a decline in consumer spending as a key factor dragging down first-quarter GDP. His remarks signalled a wait-and-see approach, especially in the face of mounting geopolitical and economic headwinds.
Tariffs Threaten Growth, Price Stability, and Employment
Powell acknowledged that Trump’s tariff strategies present a complex challenge. He noted that higher import duties could create a ripple effect, stalling economic momentum while pushing prices higher.
“These tariffs are larger than anticipated,” Powell said, referring to the broad scope of Trump’s trade measures. He added that current trade dynamics, tax reform uncertainties, and immigration policies have placed the Fed in “uncharted territory.”
He warned that elevated tariffs could drive the U.S. economy toward a triple threat:
- Slower GDP growth
- Higher unemployment
- Rising inflation
“The Fed hasn’t dealt with this kind of policy-driven economic challenge in nearly five decades,” he added.
Inflation Outlook: Stable but Pressured by Trade Policies
Powell maintained that inflation remains slightly above the Fed’s 2% annual target, though it has eased significantly from the post-pandemic surge seen in 2022.
“The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” Powell warned.
Despite the rising risks, he affirmed that the U.S. economy remains fundamentally solid, even if price pressures and global uncertainty cloud the horizon.
Fed’s Focus Shifts from Inflation to Labor Market Stability
For the first time in months, Powell highlighted labour market conditions over 25 times during his speech—an indication that the Fed may be shifting its focus toward employment metrics.
“We’ve seen real progress on inflation, but we now need to monitor job market trends carefully,” he explained.
Analysts view this as a signal that the Fed’s Federal Open Market Committee (FOMC) might recalibrate its dual mandate: balancing inflation control with maximum employment.
Read Also: The Future of Decentralised Storage: Exploring Web3’s Impact…
Rate Cuts Ahead? Market Awaits June Decision
Markets continue to speculate about a possible rate cut in June, particularly following Powell’s clarification that the Fed would not raise rates unless inflation accelerates sharply.
The CME Group’s FedWatch Tool shows rising confidence in a mid-year rate reduction, aligning with Powell’s cautious stance.
He reinforced the Fed’s independence in its decision-making process, even as Trump’s aggressive “reciprocal” tariffs threaten to derail the central bank’s dual objectives.
“Data, not politics, drives our decisions,” Powell emphasised.
Markets React: Stocks and Crypto Tumble
Powell’s address had an immediate impact on financial markets.
- The Dow Jones plunged 1.7%
- The S&P 500 dropped 2.5%
- Bitcoin declined 3%, reflecting a broader risk-off sentiment
- Dogecoin, Cardano, and Chainlink each fell more than 4%
Investors interpreted Powell’s speech as a sign of cautious policy-making and responded by pulling back from both equities and crypto assets.
Final Thoughts: Powell Prepares Market for a Rougher Road Ahead
Chair Jerome Powell made it clear that tariffs and inflation will define the Fed’s decision-making in 2025. While the U.S. economy still shows strength, Powell signalled that policymakers are preparing for a more volatile phase.
As markets adjust to the likelihood of longer-term inflation, slower growth, and labour market disruptions, the Fed’s upcoming decisions could shape financial conditions globally.
Investors should closely watch future speeches and policy meetings, especially as the June window approaches. The stakes have rarely been higher.
