Fed Chairman Powell’s stagflation warning and Trump’s tariff threats have led to increased market volatility, keeping investors in a state of uncertainty.
Following the best performance of the stock market in nearly two years, a new wave of volatility has put investors in a state of uncertainty, triggered by Federal Reserve Chairman Jerome Powell’s cautious economic outlook and President Trump’s latest tariff threats. The risk of stagflation has once again dragged markets down.
Fed Chair’s Warning About Stagflation Risks
After experiencing one of its best performances in nearly two years, the U.S. financial markets have once again been shaken by new uncertainties. Federal Reserve Chairman Jerome Powell’s explicit warning, along with President Trump’s announcements on new tariff policies, have fueled fears and sent stocks spiraling downwards.
In a speech on Wednesday, Powell specifically warned of the risks of stagflation, a scenario where economic growth slows down, but inflation remains high. He pointed out that recent economic policies, especially in terms of new tariffs, could weaken growth and increase inflationary pressures. These remarks triggered an immediate market reaction, with the S&P 500 index plummeting over 2%.
Trump Increases Pressure on Powell with Strong Criticism
This sharp drop marked the end of a period of relative stability that had followed the initial market shock from “Economic Liberation Day” earlier this month. By the end of the trading week, all three major U.S. indexes closed in the red, leaving investor hopes for continued upward momentum diminished.
However, the situation didn’t end there. Former President Donald Trump made strong comments attacking Powell’s performance, questioning his actions. Trump stated on social media and at the White House, “If I want him out, I’ll get him out of there real fast, believe me. He’s doing the job too late, always too late.”
Fed’s ‘Put’ Rejected, Adding to Investor Uncertainty
These comments from Trump followed Powell’s rejection of the “Fed put” – the belief that the central bank would always step in by cutting rates to support the markets in times of crisis. Powell’s dismissal of this notion added to the growing uncertainty in the market.
Increased Volatility and Rising Fear in the Markets
The market sentiment has unravelled under the weight of rising uncertainty. Risk indicators such as the CBOE Volatility Index (VIX), often referred to as Wall Street’s fear gauge, have spiked to levels unseen since the 2008 financial crisis and the COVID-19 market crash of 2020.
Stuart Kaiser, head of U.S. equity trading strategy at Citi, emphasized in his response to recent market fluctuations: “Investors are anxious. We’re not out of the woods… and the bad news is not fully priced in.” He further elaborated in an interview with Yahoo Finance, stating that the markets’ reaction this week clearly indicated that even familiar warnings are causing extreme reactions, reflecting the fragile investor sentiment and persistent market uncertainty.
Tech Stocks Pressured by New Trade Restrictions
Alongside the latest Fed drama, new restrictions on Chinese chip exports announced on Wednesday also put pressure on tech stocks, notably Nvidia, a leading player in the AI sector. The news about these restrictions sent shockwaves through the technology sector, compounding the market’s woes.
Conclusion: An Uncertain Outlook for Financial Markets
With these combined factors, the outlook for global financial markets remains bleak. Investors continue to wait for clear signals or at least some resolution on the future direction of U.S. economic policy.
