U.S. stocks took a sharp dive on Wednesday after Federal Reserve Chair Jerome Powell expressed concerns about the economic impact of the Trump-era tariffs, which have been more severe than initially expected. Powell warned that the tariffs could lead to higher inflation and slower growth, heightening fears of a potential recession. The Dow Jones Industrial Average dropped nearly 700 points, falling 1.73% to 39,669.39. The broader S&P 500 index also declined 2.24%, while the Nasdaq experienced a steep 3.07% loss, with technology stocks like Nvidia and AMD suffering heavy losses.
Powell’s cautionary remarks sent a ripple effect through the markets, as investors worried about the longer-term consequences of the tariffs. In particular, Powell warned that inflationary pressures could become more persistent, as the tariffs are expected to increase consumer prices, at least temporarily. These comments have put a damper on the expectations of an imminent interest rate cut by the Federal Reserve, despite U.S. inflation easing to 2.4% year-on-year in April, down from 2.8% the previous month.
While the stock market struggled, gold prices surged to a new record high, reaching $3,356 per ounce early Thursday morning. The rally in gold is largely attributed to growing demand from institutional investors and central banks, which have significantly increased their gold reserves since late 2024. By 6 a.m. GMT, gold prices slightly retreated to around $3,330 as some investors took profits, but the upward trend remains intact, reflecting continued investor concerns about inflation and economic instability.
In the currency markets, the U.S. dollar strengthened as President Trump’s tweet about progress in trade talks with Japan bolstered optimism. The U.S. dollar index rose to 99.723, while the euro weakened, with the EUR/USD rate falling 0.44% to 1.1347.
Meanwhile, Fitch Ratings lowered its global growth forecast for 2025, cutting its projection from 2.3% to 1.9%. The downgrade reflects the ongoing trade tensions between the U.S. and China, with the agency predicting that U.S. economic growth will slow significantly in the second half of the year. Fitch also raised its inflation forecast for the U.S. above 4% and highlighted that the weakening U.S. dollar is giving central banks in other countries more room to ease monetary policy.
The global economic outlook has dimmed, and with tariffs continuing to impact trade and inflation, both the stock market and gold prices are likely to remain volatile in the coming weeks.