Trump’s tariffs likely to increase inflation and slow growth, warns Fed chair

Good morning and welcome back to FirstFT. Today we’re covering:

• Jay Powell’s inflation warning

• Nvidia’s chief executive in Beijing

• Trump’s stand-off with Harvard

• And the outlook for the dollar

President Donald Trump’s tariffs are “likely” to put at risk the Federal Reserve’s goals of keeping prices and unemployment in check, chair Jay Powell warned yesterday, as he emphasised the US central bank’s focus on inflation.

What else did the Fed chair say? Powell, speaking at the Economic Club of Chicago, said: “The [Trump] administration is implementing significant policy changes and particularly trade is now the focus. The effects of that are likely to move us away from our goals.” He added: “Without price stability, we cannot achieve long periods of strong labour market conditions.” Powell also said that the president’s tariffs had been “significantly larger than anticipated” and that “the same was likely to be true of the economic effects, which will include higher inflation and slower growth”. He said the effects of the tariffs were “likely to move us away from our goals”.

What was the reaction to Powell’s speech? US stocks extended a sell-off that began early yesterday. The S&P 500 ended the day down 2.2 per cent at 5,275.70. Gold rose 0.4 per cent today to hit another record high of $3,357.78 and the dollar fell to a fresh six-month low. Stock markets in Asia and Europe were mixed. “Powell is between a rock and a hard place,” Tom Graff, chief investment officer at Facet, told Reuters news agency. “The Fed can’t act proactively to stem any potential economic weakness, given that tariffs are likely to also cause inflation.” Powell’s comments suggest there is a divergence between those members of the Federal Open Market Committee who feel the impact of tariffs on inflation will be short term, such as governor Christopher Waller, and those who think it will be a longer-term problem. Read more on Powell’s comments.

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Here’s what else we’re keeping tabs on today:

• EU interest rates: The European Central Bank is widely expected to lower borrowing costs to 2.25 per cent, the seventh cut since June. Turkey’s central bank is expected to halt its easing cycle.

• Companies: American Express, Blackstone, Netflix, State Street and UnitedHealth report results. Chinese tea chain Chagee is set to brave choppy markets after raising more than $400mn in its New York initial public offering.

• Meloni in Washington: Italy’s prime minister will seek to jump-start trade talks between the EU and US when she meets Trump at the White House. Separately, secretary of state Marco Rubio and special envoy Steve Witkoff are due to hold talks with President Emmanuel Macron in Paris.

• Canada’s election: The leaders of the main political parties gather for a televised English language debate in Montreal.

Join Unhedged’s Robert Armstrong and other FT experts next Wednesday for a subscriber-only webinar, as they break down how Trump’s policies are reshaping markets. Register for free.

Five more top stories

1. Nvidia chief executive Jensen Huang has arrived in Beijing after new curbs from Washington on the chipmaker’s China sales sent its shares tumbling. The trip comes at the invitation of the China Council for the Promotion of International Trade, a government-affiliated trade group heavily involved in facilitating US-China business relations. Here’s more on the visit.

• More on Nvidia: The chipmaker was blindsided by Trump’s new export controls on its best-selling artificial intelligence chip in China.

• Congressional investigation: The House of Representatives China committee said DeepSeek posed a “profound threat” to US national security and asked Nvidia to explain how the Chinese company obtained US chips to power its app.

2. Trump announced there had been “big progress” after meeting Ryosei Akazawa as Japan sought to become the first major economy to secure a reprieve from US tariffs. Japanese officials said the unanticipated personal meeting with Trump was a possible sign of the president’s keenness to hammer out trade deals with allies. Read more on the outcome of the talks.

3. Trading in two little-known New York-listed stocks soared in the weeks before the companies announced the appointment of Trump family members to their advisory boards. Shares of drone maker Unusual Machines almost tripled and Trump Tower-based fintech group Dominari saw its share price rise 580 per cent before their respective disclosures, which experts have described as “clearly unusual”.

4. Santander has overtaken UBS as continental Europe’s most valuable bank after Trump’s tariff-induced market rout hit the Swiss lender harder than its peers. The shift marks a symbolic turnaround for Santander, which has struggled to boost its languishing share price for much of the past decade, and underscores the challenges facing UBS.

5. Astronomers have found signs of biological activity on a planet 124 light years from Earth, in what they call the strongest evidence yet of extraterrestrial life. The discovery was made on K2-18b, a distant water-covered planet that is 8.6 times bigger than Earth. Here’s what they detected.

Today’s big read

Since entering the White House, Trump has launched an attack on US universities that has few parallels in the history of the federal government’s interactions with the higher education sector. The latest salvo in the war against elite universities came this week, when Trump moved to strip Harvard of its tax-exempt status. For Trump the campaign is central to his culture wars, but the project has the clear imprimatur of Stephen Miller, the president’s deputy chief of staff, who is driving much of the domestic agenda.