US stocks tumbled on Wednesday as investors were reminded of the costs President Trump’s tariffs will have for major companies and the challenges these policies may present for the broader US economy.
The market sell-off intensified in the final hours of trading as Federal Reserve Chair Jerome Powell delivered perhaps his starkest warning yet on the potentially stagflationary effects of Trump’s tariff policies.
Powell warned during a speech in Chicago of the “challenging” impacts of the uncertainty that has hit the economy, adding the central bank will “wait for greater clarity” before considering any interest rate adjustments.
These remarks amped up the potential negative impacts of sweeping tariffs and took away the likelihood the Fed would be quick to cut rates should the economy slow.
Specifically, Powell warned tariffs “are highly likely to generate at least a temporary rise in inflation,” adding, “The inflationary effects could also be more persistent.”
Read more: What Trump’s tariffs mean for the economy and your wallet
The benchmark S&P 500 (^GSPC) dropped about 2.2% while the Dow Jones Industrial Average (^DJI) shed roughly 700 points, or around 1.7%. The tech-heavy Nasdaq Composite (^IXIC) fell over 3% as the new chip provisions weighed on the tech sector.
Wednesday’s losses upset what had become a more stable environment for financial markets after the initial shock of “Liberation Day” sent markets reeling earlier this month.
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These remarks came in the middle of what was already shaping up to be a negative day for US stocks, led by the tech sector.
AI chip leader Nvidia (NVDA) revealed late Tuesday night that new restrictions from the US government on its chip exports to China would result in $5.5 billion in charges. AMD (AMD) made similar announcement, saying the new provisions could cost the chipmaker up to $800 million.
Nvidia and AMD both fell about 7% on the day.
“What this comes down to is this continued level of uncertainty in the markets,” Sylvia Jablonski, Defiance ETFs CEO and CIO, told Yahoo Finance.
Policy uncertainty has been at the forefront of the recent market sell-off. Economists broadly expect these policies to boost inflation and slow economic growth.
To some, that combination leads to a clear result.
“Recession odds are climbing even further as Powell pushes back the timing of cuts,” Renaissance Macro head of economics Neil Dutta wrote in a note on Wednesday.
During the question-and-answer session at the Economic Club of Chicago, Powell was asked directly whether the Federal Reserve would intervene if the stock market continued to plummet.
“No,” Powell said, denying the theory that there is a so-called Fed put, or level of a stock market sell-off where the Fed would cut interest rates to calm markets.
Powell said markets are currently attempting to asses a highly uncertain environment, and that leads to volatility.
“Markets are doing what they’re supposed to do,” Powell said. “They’re orderly and they’re functioning just about as you would expect them to function.”
On Wednesday, that market function featured shifting investor views on Nvidia amid the new costly provisions laid on by the Trump administration.
Interactive Brokers chief strategist Steve Sosnick told Yahoo Finance that the slide in Nvidia shares was “emblematic” of the issues driving the stock market lower over the past month. As earnings season progresses in the weeks ahead, it’s unlikely Nvidia will be the only company to warn about higher costs.
“This is uncertainty,” Sosnick said. “And uncertainty is a killer for a company, for any company.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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