As US stocks continue to plummet, the Fed chair says Trump's tariffs could make inflation worse.

The US Federal Reserve chair, Jerome Powell, warned Donald Trump’s tariffs were generating a “challenging scenario” for the central bank and were likely to worsen inflation. Powell’s comments on Wednesday came US stock markets had already been rattled by a new trade restriction on the chip designer Nvidia. The sell-off picked up as Powell spoke to The Economic Club of Chicago. The S&P 500 index dropped by about 2% in afternoon trading, with the tech-heavy Nasdaq index down 3%. The Dow Jones fell 1.4%. “The new administration is in the process of implementing substantial policy changes in four distinct areas: trade, immigration, fiscal policy and regulation. Those policies are still evolving, and their effects on the economy remain highly uncertain,” said Powell. Powell said the US economy was well-positioned but added that Trump’s tariffs were likely to cause “at least a temporary rise in inflation. The inflationary effects could also be more persistent.” Nvidia, the California company at the heart of the revolution in artificial intelligence technology, lost billions of dollars from its market value at the opening bell, with its shares down 8.5% by early afternoon. ‘The sky won’t fall’: China plays down Trump tariff risks as stock markets rally Read more The sell-off, which has spread to semiconductor makers in Asia and Europe, comes after Nvidia said the Trump administration had restricted the sale of its H20 chip in China by means of new licence requirements. The company now expects to report a $5.5bn (£34.1bn) hit in its financial quarter that ends on 27 April, covering the cost of licences for its stock of the chips and associated sales commitments. The US restriction will also hit the MI308 processor made by rival chip business Advanced Micro Devices (AMD). Its shares dropped 6.5% as it expects to take a charge of as much as $800m because of the new rule. In Asia, South Korean semiconductor businesses such as Samsung Electronics and SK Hynix fell by about 4% overnight, and the Taiwan Semiconductor Manufacturing Company (TSMC) dropped 2.5%. Meanwhile in Europe, shares in semiconductor tech firm ASML fell 5.2% as its chief executive, Christophe Fouquet, said tariffs had “increased uncertainty in the macro environment”. The Dutch company, which produces lithography machines used to make chips, also reported orders of €3.94bn in its first financial quarter, about €1bn less than investors had expected. So far the chip industry has been exempt from the 10% tariffs imposed by the US since 2 April. The US government has historically built up regulations to limit Chinese access to advanced chips – including under Joe Biden as it raced for supremacy in AI. But the Trump administration has been paving the way for more levies on the sector. Global stocks were also hit by a warning from the World Trade Organization. It said Trump’s tariffs will send international trade into reverse this year and depress global economic growth. While the WTO had previously expected goods trade to expand by 2.7% this year, it now forecasts a 0.2% decline. skip past newsletter promotion Sign up to Business Today Free daily newsletter Get set for the working day – we'll point you to all the business news and analysis you need every morning Enter your email address Sign up Privacy Notice: Newsletters may contain info about charities, online ads, and content funded by outside parties. For more information see our Privacy Policy. We use Google reCaptcha to protect our website and the Google Privacy Policy and Terms of Service apply. after newsletter promotion There were some more positive indicators across the market, with a 1.4% rise in US retail sales in March being higher than expected. It compared with a 0.2% gain in February, according to the US Census Bureau, though this could suggest consumers were snapping up goods before the implementation of tariffs. Oil prices also rose on Wednesday amid hopes of trade talks between China and the US, and following a report that Iraq plans to cut oil production in April. Brent crude rose by 84 cents, or 1.3%, to $65.49 a barrel, while US crude rose by a similar amount to $62.12 a barrel. If there are trade talks with China, they will involve the country’s new international trade negotiator. Beijing unexpectedly announced on Wednesday that Li Chenggang will take over the role from the veteran trade tsar Wang Shouwen. No reason was given for the change, although it came amid a broader reshuffle in Chinese government. In the US, California has launched a legal challenge to Trump’s tariffs, accusing the president of overstepping his authority and threatening trade in the state. The lawsuit was brought by California’s governor, Gavin Newsom, and its attorney general, Rob Bonta. Also on Wednesday, Trump posted on his social media platform Truth Social that he would attend a trade meeting with Japanese officials and his cabinet secretaries. “Japan is coming in today to negotiate Tariffs, the cost of military support, and “TRADE FAIRNESS,” he wrote. “I will attend the meeting, along with Treasury & Commerce Secretaries. Hopefully something can be worked out which is good (GREAT!) for Japan and the USA!” Japan was hit with a 24% tariff rate on its exports to the US, though, like most of Trump’s “reciprocal” tariffs, this was paused for 90 days last week. However, a 10% universal rate remains in place, as well as a 25% duty on the sale of Japanese cars to Americans. There is a lot at stake The world’s most powerful man is using his office to punish journalistic organisations that won’t follow his orders or who report critically on his policies. Donald Trump’s actions against the press include bans, lawsuits and hand-picking his own pool of reporters.  But the global threat against the press is bigger than just Trump. Economic and authoritarian forces around the globe are challenging journalists’ ability to report. An independent press, one that those in power can’t simply overrule, is crucial to democracy. Figures such as Trump and Hungary’s Viktor Orbán want to crush it through exclusion and influence.  The Guardian is a global news organisation that will stand up to attacks on the free press. We have no interest serving those with immense power or immense wealth.   We are owned by an independent trust devoted only to protecting and defending our journalism. That means we don’t have a billionaire owner dictating what our reporters can cover or what opinions our columnists can have, or shareholders demanding a quick return. The global situation is shifting hour by hour, making this an extremely challenging moment. It will take brave, well-funded, committed, quality journalism to call out what is happening.  Our job is to make sure we do not get overwhelmed as Trump floods the zone. We must focus on the stories that will make the biggest impact on people’s lives, while holding the powerful to account. We’ll also continue to focus on the ideas people need to create a better world: a reason for hope.  As the writer and Guardian columnist Rebecca Solnit says: “authentic hope requires clarity … and imagination”. The Guardian can provide both and, with the help of readers like you in Ethiopia, we can drive hope by reporting truthfully on what is happening and never pulling our punches. A lot is at stake.