Fed chair fired in all directions and echoes like a bomb in the markets
Summary of the Fed speech that crashed the market
Powell just showed Trump who's boss
Powell signals: we are in trouble.
Tariffs, inflation, global trade – everything is in a mess. And the Fed? Under pressure.
Jerome Powell took the stage, not just as the Federal Reserve chairman, but as a fighter. Against inflation, against Trump, and against the risks bubbling beneath the surface.
But perhaps most strongly, against the illusion that everything is under control.
The tariffs? Much more painful than we thought. Powell fully admitted: "The economic impact of tariffs is greater than expected."
But it doesn't end there.
According to him, their inflationary effect is not only strong but also long-term.
And the message is unsettling: they are not just temporarily raising prices, but could establish new inflation.
He added in the same context: "We need to ensure their impact remains a one-off only, and does not spiral into a continuous one."
The Fed? "In a good position to wait" – but... it's not a simple story. On the one hand, Powell emphasizes: "We are at full employment, inflation has already come down... we can take a breath."
On the other hand, almost every other word in the speech points to extreme uncertainty, growing pressure, and a risk of deviating from the Fed's targets.
He even hints at a problematic situation: "We may find ourselves in tension between employment and inflation targets. We will have to make difficult decisions."
Economy slowing – weak quarter forecast. US growth, according to Powell, slowed significantly in Q1 2025, compared to the previous year. And he adds with cold irony: "The labor market is robust, but it is not contributing to inflation."
What does this mean?
That the economic machine is working, but not strong enough to pull inflation down.
Growing confusion, market sentiment barely breathing. Powell warned: "A sharp decline in business and household confidence, mainly due to uncertainty regarding trade policy."
He warns that this is an impact that could harm growth.
And meanwhile?
Tariffs higher than the Fed's most optimistic forecasts!
Translation: Even our pessimistic forecasts were not pessimistic enough.
Fed balance sheet? Not closing this year – maybe in 2026. Powell confirmed that the Fed will move away from its balance sheet targets this year, perhaps returning to them only next year. Meaning, there is no expectation of a quick end to the tapering program.
Inflation forecast. PCE is expected to rise by 2.3% year-over-year until March. Core – 2.6%. Numbers that sound moderate, but if you listen to Powell's tone, there is a lot of fear of inflation remaining high.
Layoffs, real estate, and science policy – all under a magnifying glass. Powell referred to government cuts and claimed that currently they are not harming the economy broadly.
But on the other hand, he emphasized: cuts to university and science budgets harm productivity and jobs. The commercial real estate sector is in a process of "problem-solving." (Meaning, it is still a serious risk.)
Crypto, regulation, and AI. Cryptocurrencies are gaining momentum, and the Fed supports a legal framework for stablecoins. A hint at regulatory easing in crypto banking.
Artificial intelligence? "This is just the beginning" – according to Powell. He acknowledges that AI may bring dramatic change, but it is still difficult to predict the direction of its impact.
Bottom line – a speech with warnings, not hope. Powell sounds like someone preparing the markets for a particularly problematic scenario: - Inflation that does not yield - Free trade under tension - A market losing confidence - Forecasts missed repeatedly - And the bonus: an implicit confrontation with Trump – which may escalate.
The main message: the Fed has not finished the fight. We are on a battlefield.
And as Powell himself concluded: "We are not yet close to the point where we will stop balance sheet reduction." "If needed, we will provide dollars to central banks worldwide."