The market jumped in Wednesday after Federal Reserve Chairman Jerome Powell painted a staggering picture of the risks facing the economy, warning of both growth and price rise as a result of the Trump administration’s tariff policy.
The Dow Jones industrial average fell 700 points or 1.7% after starting the holidays with some profits. The S&P 500 fell by 2.3%, while the heavy-duty Nasdaq Composite lost more than 3% of its value.
Tech was hit particularly hard again as the SPDR NYSE Technology Exchange Trade Fund recorded a loss of 3.1% that day.
Speaking at an event in Chicago, Powell said the economy will “climb away” from its goal of stable prices and maximum employment, and that there may not be “progress” for the rest of the year.
“I think we’ll probably be moving away from these goals for the balance this year and at least not to make any progress, and we’ll resume that progress as much as we can,” he said.
Although the results of first quarter GDP will not be released for another two weeks, Powell said the data he saw suggests growth slower compared to last year’s robust pace.
“The data we have at hand so far suggests that growth has slowed down in the first quarter of this year,” he said.
Atlanta Fed’s first quarter GDP forecast was 2.2% negative on Wednesday. GDP rose 2.4% in the fourth quarter and 3.1% in the third quarter.
Powell said that as growth slows, prices rise and prices rise, the Fed foreseen a scenario where the double mission of stable prices and low unemployment rates would be opposed to each other.
“Our tool does just one of these two things at the same time,” he said.
If prices rise with unemployment, he said, the Fed “considers how far the economy is from each target, and the potentially different time horizons that each of those gaps is expected to close.”
Powell believes Trump’s tariffs offer a one-time increase in prices, but he said it will be the Fed’s job “to ensure that prices rise only once and not turn into an ongoing inflation process.”
“That’s a big part of our job,” he said.
Economists are concerned that tariffs could expand further and turn into a general “supply shock” if left in place for a long period of time.
Updated at 4:37pm
