Powell signals potential stagflation as markets brace for slower growth
🏦 Fed Keeps Rates Unchanged, Sticks With Two Cuts in 2025
The U.S. Federal Reserve left its benchmark interest rate unchanged at 4.25%-4.5% on Wednesday, marking a continuation of its cautious stance since December. The central bank’s latest “dot plot” still projects two rate cuts by the end of 2025, although Fed Chair Jerome Powell offered no clear timeline.
His press conference quickly shifted focus to trade and tariffs, which the Fed now sees as a looming inflation threat.
“Everyone I know is forecasting a meaningful increase in inflation in the coming months from tariffs,” Powell said. “Some of it will fall on the end consumer.”
📉 Economic Outlook Revised: Slower Growth, Higher Inflation
The Fed now expects:
- 2025 PCE inflation to exceed 3% (up from 2.8%)
- GDP growth to slow to 1.4% (down from 1.7%)
While recent U.S. data — including a surprise 139,000 jobs gain in May and low monthly inflation — looked strong, Powell emphasized that tariff effects are lagging and will hit consumers gradually.
“Retail prices today reflect pre-tariff inventory,” he noted. “The real impact will show up in the months ahead.”
This sets the stage for a scenario Powell acknowledged as possible: stagflation — a toxic mix of rising prices and slowing growth.
🌍 Geopolitics in Focus: Iran, Trade, and Emerging Markets
Markets are not only digesting Fed signals but also escalating geopolitical risks:
- Trump continues to hint at military options on Iran, but says he hasn’t made a decision.
- Israeli President Herzog reiterated that regime change in Iran is not the goal, but stopping its nuclear ambitions is.
- Meanwhile, Trump’s 90-day pause on “reciprocal” tariffs is nearing its end, with Vietnam and India bracing for potential economic fallout.
Ironically, emerging markets are seeing renewed interest. A Bank of America survey shows institutional investors increasing exposure despite Trump’s tariff stance.
đź’ą Markets Mixed: U.S. Steady, Asia Weak
- U.S. indices were mostly flat:
- S&P 500: -0.03%
- Dow: -0.1%
- Nasdaq: +0.13%
- Asia struggled:
- Hang Seng: -2%
- Japan: +3% (boosted by Nippon Steel’s U.S. Steel deal)
âś… Conclusion: Summer Risks Mount, But Fed Stays Calm (for Now)
As Powell put it, growth will slow “eventually.” Between tariff-driven inflation, geopolitical risks, and fragile global trade dynamics, the market is entering a high-volatility zone. For now, the Fed remains on hold — but investors should watch closely: stagflation is no longer off the table.
Wall Street has “summer risk” on its mind — and the Fed might soon sing that tune too.
