On April 5, Eastern Time, amid the market plunge across the board, Federal Reserve Chairman Powell delivered a keynote speech on the economic outlook. He said Trump's tariffs would push up inflation and reduce economic growth, but it is "too early" to adjust monetary policy. This statement disappointed investors, which led to further declines in U.S. stocks.

As Powell's speech, the U.S. stock market suffered the largest sell-off since the COVID-19 pandemic in 2020, and the fuse was Trump's decision to implement a new round of comprehensive tariff policies. Many investors and economists fear that the trade war could put the global economy in recession.

Powell said on the same day that the Fed is now facing a "highly uncertain prospect" due to the reciprocal tariff measures announced by Trump on Wednesday. It will be very difficult to assess the economic impact of tariffs before there is greater certainty about the details.

He pointed out that while uncertainty is still high, it is now obvious that the tariff increase is significantly larger than expected. The same is possible for economic impacts, which include higher inflation and slower growth, and the extent and duration of these effects remain uncertain.

"We will continue to pay close attention to the upcoming data, changing prospects and risk balances. We are ready to wait for clearer news before considering adjusting our policy stance. It is too early to say what the appropriate path to monetary policy is."

Powell did not give a clear answer to whether the U.S. economy is heading for recession, but he acknowledged that uncertainty in trade policy has put pressure on businesses and that more and more forecasts show that the risk of recession is rising.

Despite the threat of tariffs, Powell hints that the Fed will focus on controlling inflation. “Our obligation is to keep long-term inflation expectations stable and ensure a one-time increase in price levels does not become a persistent inflation problem.”

Powell said he plans to complete his entire term. Powell's term ends in May 2026.

Although Powell still maintains expectations for two rate cuts in 2025, according to data from CME, the market expects the Federal Reserve to cut interest rates by a massive starting point in June, and by the end of this year, the Federal Reserve will cut interest rates by at least 100 basis points.

Powell stressed that to achieve the Fed's mission in inflation, inflation expectations need to be controlled, which may not be easy to do if Trump imposes full tariffs on trading partners, some of which have announced retaliation measures.

More attention to inflation may prevent the Fed from relaxing its policy until there is a relatively clear expectation of the long-term impact of tariffs on prices. Previously, policymakers believed tariffs were just temporary price increases rather than fundamental inflation drivers, but Trump's latest move could change that view.

Urge interest rate cuts

It is worth noting that before Powell's speech, US President Trump posted on social media that now is an excellent time for Federal Reserve Chairman Powell to cut interest rates. He urged Powell to "stop playing with politics" and lower the benchmark interest rate immediately, as U.S. inflation has fallen.

"Energy prices have fallen, inflation has fallen, even egg prices have fallen by 69%, jobs have increased, and it's all happening in two months - it's a huge win for the United States. Powell, cut interest rates and stop playing political tricks!"

Earlier on Friday, Trump also retweeted a video that suggested the president was interested in suppressing financial markets as part of a strategy to force Powell to lower interest rates.

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