April 16 (UPI) — U.S. stocks on Wedneday dropped significantly after Federal Reserve Chairman Jerome Powell warned President Donald Trump’s tariffs likely could cause economic damage.
As he spoke at 1:30 p.m. Wednesday at the Economic Club of Chicago, stock prices slumped and ended the session near lows for the day. He said “there isn’t a modern experience for how to think about this.”
With inflation just slightly above a 2% target, the Fed has been reluctant to lower interest rates and decide whether high inflation or a bad economy is the greatest risk.
“For the time being, we are well-positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell said.
The next Federal Reserve meeting is June 11 and 12.
“As we gain a better understanding of the policy changes, we will have a better sense of the implications for the economy, and hence for monetary policy,” Powell said. “Tariffs are highly likely to generate at least a temporary rise in inflation. The inflationary effects could also be more persistent. Avoiding that outcome will depend on the size of the effects, on how long it takes for them to pass through fully to prices, and, ultimately, on keeping longer-term inflation expectations well anchored.”
The unemployment rate in March rose a little to 4.2% from 4.1%,
“While job growth has slowed relative to last year, the combination of low layoffs and lower labor force growth has kept the unemployment rate in a low and stable range,” Powell said. “Meanwhile, the ratio of job openings to unemployed job seekers has remained just above 1, near its pre-pandemic level. … Overall, the labor market appears to be in solid condition and broadly in balance and is not a significant source of inflationary pressure.”
But tariffs are threatening employment and inflation.
“Jerome Powell just laid down the law with Trump,” David Russell, global head of market strategy at TradeStation, said in commentary issued Wednesday and obtained by CNN. “It was a clear warning about stagflation, and a declaration that the Fed won’t enable the White House with rate cuts.”
Wall Street reaction
At the close, the Dow Jones Industrial Average dropped below 40,000, falling to 39,669.39, a drop of 699.57 points, or 1.73%. Last week the average fell under that barrier to 37,645.59 on April 8, with it last below on Aug. 13, 2024. The record was 45,014 on Dec. 4 and it is down 6.76% for the year.
Standard and Poor’s 500 declined 2.24%, or 120.93 points, to 5,275.70. The index dropped below 5,000 to 4,982.77 on April 8, the lowest since 4,967.23 on April 19, 2024. The record was 6,144.15 on Feb. 19 and for the year the S&P is down 10.3%.
“The S&P 500 is just much more of a technology-driven index than it has been in the past,” Zachary Hill, head of portfolio management at Horizon Investments, told CNBC. “It has a disproportionate impact, both to the upside and downside, as we’ve seen. We saw it last week, and now we’re seeing it reverse.”
The tech-heavy Nasdaq Composite slumped 3.07%, or 516.01 points, to 16,307.16. Last week it entered bear market bear market when it declined to 15,267.913 on April 8. A bear market is considered to be a 20% decline with 10% a correction. The index’s record is 20,173.89 on Dec. 16, 2024 and for the year the decline is 15.55%.
The 10-year Treasury yield was at 4.288% on Wednesday, a drop of 0.81%, as investors made safety grabs of bonds, which lowered rates and lifted prices.
West Texas Intermediate Crude for May rose $1.37 to $62.70 a barrel, reflecting energy traders’ concerns fuel demand will decline. It went under $60 a barrel, at $59.58 on April 8 with the last time under that barrier in February 2021.
And gold was trading at a record $3,350, an increase of $110.40, as investors look to metals amid uncertainty about tariffs and the economy. For the year, gold is up 24.56%.
Markets reached their low point after Trump announced a 10% baseline tariffs on most trading partners and reciprocal tariffs on about 60 “worst offenders,” including Cambodia hit with 49% and Vietnam at 46%. But on April 9, he paused those higher tariffs for 90 days.
Stock sectors
All but 11 of the CNBC sectors declined Wednesday with the biggest fall being technology at 3.94%, followed by consumer discretionary 2.69% and communications services 2.48%. Energy rose 0.8%.
Chipmaker Nvidia sank 6.87% after the company said it will post a $5.5 billion quarterly charge related to exporting its H20 graphics processing units to China and other nations.
The stock price of Apple, which makes computers and cellphones in China, declined 3.89% to 194.27, but above its yearly low of 172.42 on April 8. On Friday, Trump removed the 125% tariff on electronic items from China but kept other ones.
Nike, which depends on international supply chains and imports from Vietnam, was down 2.33%.
U.S. auto stocks rose as 46% of cars sold in the United States come from other nations.
Tesla, which makes most of its cars in the United States but imports parts, was down 4.94% to 241.55. The record high was near double that, 479.86, on Dec. 17.
Ford, which makes fewer cars outside the United States than other major companies, declined $0.53. General Motors was down 0.72% and Stellantis dropped 1.39%.
Stellantis, the parent company of Chrysler and Dodge, also owns foreign brands such as Jeep, Ram, Alfa Romeo, Fiat and Maserati.
