The U.S. Federal Reserve may have kept interest rates steady, but Chair Jerome Powell had some sobering words at his latest press conference — especially about tariffs and their delayed impact on inflation.
“Everyone I know expects inflation to rise meaningfully in the coming months due to tariffs. Somebody has to pay for them, and it often ends up being the consumer,” Powell warned.
Despite strong recent data — like 139,000 jobs added in May, stable unemployment at 4.2%, and only a slight inflation uptick — Powell made it clear that this could just be the calm before the storm. Why? Because tariffs don’t hit overnight.
“Retailers are still selling goods they imported months ago, before tariffs were imposed. But as that pipeline clears, we’ll start seeing the real cost show up on shelves,” he explained.
📉 Stagflation Worries Are Creeping In
Powell and his team aren’t seeing immediate signs of a slowdown, but growth is expected to taper — possibly paving the way for stagflation, the dreaded mix of rising prices and weaker growth.
In fact, the Fed just raised its inflation forecast for 2025 to over 3% (up from 2.8%), and lowered its growth outlook to 1.4% (down from 1.7%).
Is “I Got Stagflation on My Mind” the new summer anthem on Wall Street?
📊 Markets React Cautiously
- U.S. stock markets were flat:
S&P 500 edged down 0.03%, the Dow dropped 0.1%, while the Nasdaq ticked up 0.13%. - In Asia, markets slid — Hong Kong’s Hang Seng Index dropped 2%, while Japan’s Nippon Steel rallied on its U.S. Steel acquisition.
🗺️ Geopolitics in Focus: Iran, Israel & India
As tensions between Israel and Iran rise, Israeli President Isaac Herzog said regime change is not an “official objective,” but hinted it could bring peace. Meanwhile, Trump met his national security team again but said no decision had been made on striking Iran.
On another front, Trump had a tense call with India’s Prime Minister Narendra Modi, who pushed back hard against Trump’s claim of U.S. involvement in the India-Pakistan ceasefire.
“India does not and will never accept mediation,” said India’s Foreign Secretary.
🌍 Emerging Markets: A Silver Lining?
Despite Trump’s tariff threats to countries like India and Vietnam, institutional investors are warming up to emerging markets again. Bank of America’s latest Fund Manager Survey shows growing interest — possibly a sign of longer-term optimism beyond the current noise.
🧭 Bottom Line
As summer heats up, so does economic uncertainty. The Fed may be holding steady, but its tone has shifted: inflation risks are real, growth will slow, and tariffs are about to get personal — right at the checkout counter. Markets are cautiously watching, and so should you.
Stay tuned — the second half of 2025 could be anything but boring.
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