Fed’s warning rattles Wall Street, sends gold to fresh record

U.S. stocks slumped on Wednesday while gold surged to a new high, following cautionary remarks from Federal Reserve Chair Jerome Powell. His comments on inflation and employment targets hinted that the impact of Trump-era tariffs could be greater than previously expected.

“The level of the tariff increases announced so far is significantly larger than anticipated. The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” Powell said, sparking recession fears that have dominated markets since the tariffs were unveiled on April 2.

Powell also warned that inflationary pressures could be more persistent due to the tariffs, as they are expected to raise consumer prices—at least temporarily. U.S. inflation eased to 2.4% year-on-year in April, down from 2.8% the previous month, raising expectations of a potential interest rate cut by the Federal Reserve. However, growing global uncertainties and recent remarks by Fed Chair Jerome Powell have tempered those expectations, as the central bank maintains its inflation target at 2%.

At closing, the Dow Jones Industrial Average fell nearly 700 points, dropping 1.73% to 39,669.39. The broader S&P 500 index declined 2.24% to 5,275.70. The tech-heavy Nasdaq suffered the steepest losses, plunging 3.07% to 16,307.16, with chipmakers Nvidia and AMD each losing more than 10%.

Nvidia disclosed in a filing with the U.S. Securities and Exchange Commission (SEC) that it expects a $5.5 billion hit related to export license restrictions on technology that the U.S. government believes could be used in Chinese supercomputers. AMD estimated one-time charges of up to $800 million, according to its own SEC filing.

Gold pushes to a new record

After touching an all-time high early Wednesday, gold prices surged again following Powell’s statements. The precious metal reached $3,356 per ounce early Thursday with the opening of Asian markets. Institutional investors and central banks are believed to be behind the rally, as World Gold Council data show significant increases in national gold reserves since late 2024.

As of 6 a.m. GMT, gold prices were hovering around $3,330 per ounce, with minor profit-taking observed.

Meanwhile, the euro-to-dollar exchange rate opened slightly lower as the U.S. dollar index gained ground following a post by President Donald Trump regarding ongoing trade talks with Japan. “A great honor to have just met with the Japanese delegation on trade. Big progress!” Trump wrote, fueling optimism in Asian markets and strengthening demand for the U.S. dollar.

As of 6 a.m. GMT, the EUR/USD rate stood at 1.1347, down 0.44%, while the U.S. dollar index rose by the same rate to 99.723.

Weakest global growth since 2009, excluding COVID-19

On the other hand, international credit rating agency Fitch Ratings lowered its year-end global growth forecast from 2.3% to 1.9% in a special update to its Global Economic Outlook report on Wednesday, citing the escalating global trade war.

The report projected that the U.S. economy would maintain positive growth at 1.2% for 2025, but slow significantly to just 0.4% in the fourth quarter.

It also forecast that China’s growth would fall below 4% this year and next, while the eurozone’s expansion would remain well below 1%.

Global economic growth is now expected to be 1.9% in 2025, marking the weakest rate since 2009, excluding the COVID-19 pandemic period.

Fitch described the “Independence Day” tariffs announced by the U.S. on April 2 as far worse than expected. It noted that while the additional tariffs have been temporarily paused for 90 days, the tit-for-tat measures between the U.S. and China have pushed reciprocal tariffs above 100%.

The report revised the U.S. inflation forecast above 4% and highlighted that the weakening U.S. dollar is providing other central banks with more room to ease policy. Further rate cuts are anticipated from emerging markets and the European Central Bank.

Fitch also noted that low commodity prices will facilitate faster monetary easing outside the U.S. as growth slows. The Brent crude oil price assumption for 2025 was revised down by $5 to $65 per barrel.