Fed Chair Powell Warns of Tariff Turmoil as Big Company Stocks Struggle

In early 2025, Federal Reserve Chair Jerome Powell’s stark warnings about the economic consequences of escalating tariffs sent shockwaves through financial markets. His April 9 speech at the Economic Club of Chicago, in which he likened President Trump’s trade policies to a “negative supply shock” akin to the stagflation of the 1970s, ignited a sharp sell-off in U.S. equities. The S&P 500 fell over 2% on the day of his remarks, closing at 5,275.70—a loss of 120.93 points—as investors grappled with the implications of prolonged trade tensions.

The decline underscored a broader market anxiety: tariffs are no longer just a political issue but a major economic and financial risk. For large-cap stocks, which often rely on global supply chains and trade flows, the uncertainty has become a critical headwind.

The Immediate Market Reaction: A Perfect Storm

Powell’s warnings arrived amid a cascade of negative corporate news. Tech giants like Nvidia and AMD, whose chips power everything from data centers to gaming consoles, announced significant charges tied to U.S. export restrictions on semiconductors to China. Nvidia’s $5.5 billion write-down alone dragged down tech stocks, with the Nasdaq Composite plunging 3.1% the day after Powell’s speech.

The tech sector’s struggles were exacerbated by fears of a broader economic slowdown. The World Trade Organization (WTO) projected a 0.2% decline in global trade volumes for 2025, with the possibility of a 1.5% contraction if trade wars intensify. Such a scenario would hit multinational corporations disproportionately, as tariffs distort pricing, reduce demand, and strain corporate balance sheets.

The Fed’s Dilemma: Inflation vs. Growth

Powell’s central challenge is balancing the Fed’s dual mandates of price stability and maximum employment—a task growing more difficult as tariffs complicate both. By raising prices for imported goods, tariffs act as a tax on consumers, fueling inflation. Yet they also dampen business investment and hiring, slowing growth.

The Fed’s response has been cautious. Powell emphasized that the central bank would “wait for greater clarity” before adjusting interest rates, a stance echoed by officials like Cleveland Fed President Beth Hammack. However, others, such as Minneapolis Fed President Neel Kashkari, argued for prioritizing inflation control, even at the risk of tighter labor markets.

This internal divide reflects the Fed’s limited tools in addressing tariff-driven inflation. As Powell noted, monetary policy can’t resolve supply-side disruptions caused by trade policies. “We can’t fix the supply chain,” he admitted, “only manage demand.”

The Long Shadow of Stagflation

Powell’s historical references—comparing today’s tariffs to the Smoot-Hawley Act of 1930—highlight the stakes. That law, which raised U.S. tariffs to record levels, is widely blamed for worsening the Great Depression by triggering a global trade collapse.

The parallels are unnerving. In 2025, the S&P 500’s April decline followed a pattern of volatility tied to trade headlines, with corporate profits under pressure from higher input costs. Meanwhile, U.S. consumer confidence dropped to a five-year low, with households bracing for higher prices on everything from appliances to clothing.

Conclusion: Navigating the Tariff Crossroads

The market’s April 2025 slump signals a pivotal moment for investors. With the S&P 500 down over 2% in just days and tech stocks reeling from both tariffs and geopolitical risks, the path forward depends on policy clarity. If trade tensions ease, large-cap stocks could rebound—especially those with pricing power or diversified supply chains. But if tariffs persist, the U.S. economy risks a prolonged period of stagflation, with inflation and unemployment rising simultaneously.

The data is clear: the WTO’s trade projections, corporate write-downs, and the Fed’s constrained policy options all point to heightened uncertainty. For now, investors are caught in a tug-of-war between hope for a trade détente and fear of deeper economic scars. Until policymakers resolve the tariff question, markets will remain vulnerable.

In this environment, defensive strategies—such as overweighting consumer staples or healthcare stocks—might outperform. But for growth investors, the path ahead remains clouded, with Powell’s warnings serving as a stark reminder: trade wars are no longer just about borders—they’re about balance sheets.