US stocks took another historic tumble Wednesday after Federal Reserve Chair Jerome Powell warned that President Donald Trump's tariffs are 'highly likely' to cause more inflation.
'The level of the tariff increases announced so far is significantly larger than anticipated,' Powell said at an event in Chicago. 'The same is likely to be true of the economic effects, which will include higher inflation and slower growth.
'Tariffs are highly likely to generate at least a temporary rise in inflation. The inflationary effects could also be more persistent,' he added.
Powell's remarks began at 1:30pm ET. The major indexes were largely flat until then but a precipitous downturn began as soon as investors digested Powell's ominous warning.
By market close, the Dow Jones Industrial Average sank 700 points, or 1.73 percent. The broader S&P 500 fell 2.24 percent, while the tech-heavy Nasdaq Composite dipped 3.07 percent.
This dip will have a marked effect on millions of American's retirement accounts, which have already taken a beating since mid-February when Trump's tariffs on China took full effect.
Portfolios suffered even more when Trump announced on April 2 that he would beplacing what he deemed reciprocal tariffs on dozens of countries. Stocks had their worst decline since the COVID-19 pandemic began in 2020.
Powell's comments on the economy came nearly a week after the most recent CPI report showed that inflation in March had cooled to 2.4 percent year-over-year, edging ever closer to the Fed's goal of 2 percent. The caveat is that the report did not account for the effects of Trump's tariffs.
Federal Reserve Chair Jerome Powell's warning about tariffs sent the US stock market into a tailspin this afternoon, with all the major indexes closing significantly lower
Investors are still largely spooked by President Donald Trump's historically large tariffs
Some of the worst performing stocks in today's broad selloff were tech companies, many of which center their manufacturing in China, which now faces a stiff 145 percent tariff to import goods to the US.
Apple and Dell Technologies, two firms particularly reliant on Chinese factory output, dipped by 3.89 percent and 2.51 percent, respectively.
Shares of Nvidia dropped by a larger 6.87 percent after the chipmaker announced that the US moving to restrict exports of their H20 artificial intelligence chips to China would cost it $5.5 billion.
The US government has long sought to prevent Chinese companies from acquiring powerful computer chips in an effort to handcuff them from advancing their technology.
The H20 chips had been designed to comply with previous export restrictions, since they were less powerful than Nvidia'sH100 AI chip. Those chips have already been banned from China.
Stocks have generally been jittery since Trump enacted a 90-day pause on reciprocal tariffs. Investors have been cautious, knowing the White House could upend trade policy at any moment.
The S&P 500 on Monday had posted its first back-to-back gain in two weeks after the Trump administration said electronics imported from China would not face tariffs, in addition to Trump saying he is considering exemptions on tariffs on automakers.
The S&P 500 traded away all those gains and more on Tuesday and Wednesday. It is still down nearly 7 percent since April 2, what Trump affectionately called 'Liberation Day.'
Shares of Nvidia took an especially large hit on Wednesday after the Trump administration announced export controls on the company's chips to China (Pictured: Nvidia CEOJensen Huang holds a shield designed to look like a computer chip during a speech in Las Vegas, Nevada, on January 6, 2025
Leaders of the biggest investment banks are also sounding the alarm about possible tumult in the economy yet to come, includingJPMorgan Chase CEO Jamie Dimon
'In the interim, if the recent flip-flopping around US tariffs and their implementation (as with last Friday’s reprieve for tariffs on tech) is anything to go by, the only certainty is that market participants will be forced to endure a period of extended market uncertainty,' analysts at Citi Bank said in a Monday note.
Leaders of the biggest investment banks are also sounding the alarm about possible tumult in the economy yet to come.
JPMorgan Chase CEO Jamie Dimon released a statement Friday saying that the economy is 'facing considerable turbulence.'
Goldman Sachs CEO David Solomon said on a call with analysts that 'theprospect of a recession has increased with growing indications that economic activity is slowing down.'
'Our clients, including corporate CEOs and institutional investors, are concerned by the significant near-term and longer-term uncertainty that has constrained their ability to make important decisions,' Solomon added.
Average Americans are also concerned about what's to come. Consumer sentiment fell by 11 percent this month according to the longtime University of Michigan index tracking how people feel about the economy.
It was the second lowest consumer sentiment has been since the university began tracking it in 1952.
