At a recent press conference following the Federal Reserve’s meeting, Chair Jerome Powell emphasized that upcoming tariffs are likely to result in a “meaningful increase in inflation.” Powell explained that while consumers haven’t yet felt the full brunt, they will begin to absorb some of the costs as tariffs ripple through the economy. His remarks highlight growing concerns about the inflationary consequences of current U.S. trade policy, even as inflation data for May remained subdued.
U.S. Economy Shows Short-Term Strength, But Fed Warns of Stagflation Risks Ahead
Despite Powell’s warning, recent U.S. economic indicators suggest resilience. The economy added 139,000 jobs in May, surpassing expectations, while the unemployment rate stayed steady at 4.2%. Consumer confidence was also strong, as noted by a University of Michigan survey. Inflation, as measured by the Consumer Price Index, increased only 0.1% in May—lower than forecast. However, this positive trend might be a result of timing, as the effects of new tariffs have yet to be fully felt in consumer pricing.
Powell Warns Tariffs Will Fuel Inflation as Fed Eyes Stagflation and Global Tensions RisePowell acknowledged that while the Fed doesn’t currently see signs of economic weakening, slower growth is inevitable, raising the possibility of stagflation—a combination of rising prices and declining growth. The Fed kept interest rates unchanged but signaled two potential rate cuts by the end of 2025. Updated forecasts now expect inflation, measured by the PCE index, to exceed 3% next year, while economic growth is revised down to 1.4%—indicators that reinforce stagflation concerns.
Markets Steady in U.S., While Asia Dips and Geopolitical Tensions Intensify Globally
Markets remained mostly flat in the U.S., with minimal movements in the S&P 500, Dow Jones, and Nasdaq. Oil prices also showed little change. However, Asian markets declined, with Hong Kong’s Hang Seng Index dropping up to 2%. In contrast, Japan’s Nippon Steel stock jumped following its acquisition of U.S. Steel.
On the geopolitical front, Israeli President Isaac Herzog stated that regime change in Iran is not an official policy goal, although tensions remain high amid Trump’s uncertainty about potential U.S. strikes on Iran.
Tensions spilled over into diplomacy, as Indian Prime Minister Narendra Modi firmly rejected U.S. President Donald Trump’s assertion that he had mediated between India and Pakistan. India reaffirmed its long-standing stance against any form of external mediation.
At the same time, despite Trump’s aggressive tariff policies targeting countries such as Vietnam and India, institutional investors are increasingly drawn to emerging markets, according to Bank of America. This contrast underscores the intricate relationship between political decisions, economic policy, and investor sentiment on the global stage.
