Fed holds rates, says tariffs could cause stagflation

When the Federal Open Market Committee met in March, U.S. President Donald Trump had yet to unleash his so-called “reciprocal” tariffs on the world.

But Fed policymakers were already bracing for the impact of trade barriers. At the conclusion of that meeting, the FOMC lowered its economic forecast for the U.S. and hiked its inflation projection. Fed Chair Jerome Powell said “a good part” of the downbeat forecast “is coming from tariffs.”

On April 2, Trump stunned even the most pessimistic of market watchers when he held aloft the board with a list of higher-than-expected tariffs on many countries. Even though Trump has since paused them, the Fed seems to be operating on the (very uncertain) assumption Trump could reinstate those eye-watering levies at any moment.

At the FOMC’s most recent meeting that concluded Wednesday, Powell no longer pulled punches in his post-meeting press conference, as he did in March. This time, he placed the responsibility squarely on Trump’s tariffs, saying they “are likely” to cause hotter inflation, slower economic growth and higher unemployment — recipes for a stagflationary scenario.

So far, that’s the clearest warning from a U.S. authority about the damage tariffs could wreak. However, considering that Trump has not only expressed frustrations with Powell, but also said on Wednesday he wouldn’t consider lowering the 145% tariff on China to start trade negotiations with the country, it’s unlikely that Trump would heed the Fed’s caution.

The Fed holds rates and warns of downturn
The U.S. Federal Reserve on Wednesday kept its key interest rate steady in a range between 4.25%-4.5%, where it has been since December. In his press conference after the Fed meeting, Chair Jerome Powell said Trump’s “reciprocal” tariffs were “substantially larger than anticipated,” and “are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment.”

Stock jumps buoy U.S. indexes
U.S. stocks rose Wednesday. The S&P 500 added 0.43%, the Dow Jones Industrial Average gained 0.7%, boosted by a 10.8% jump in Disney shares, and the Nasdaq Composite climbed 0.27%. Europe’s regional Stoxx 600 index dropped 0.54%. Retail stocks fell 2.2% on news that sales fell by 0.1% month on month in both the euro zone and the European Union in March, according to preliminary data from Eurostat.

White House to simplify chip export rules
Nvidia shares jumped 3.1% as the Trump administration prepared to rescind what’s known as the “AI diffusion rule.” The rule, which was proposed by the Biden administration, sorts countries into three different tiers, all of which have different restrictions on whether advanced artificial intelligence chips such as those made by Nvidia and Advanced Micro Devices can be shipped to the country without a license.

AI could replace search engines: Apple
Alphabet shares slumped 7.5% and that of Apple dropped 1.1% after Eddy Cue, Apple’s services chief, said he believes that AI search engines will eventually replace standard ones such as Google, according to Bloomberg. Cue said he expects to add artificial intelligence services from OpenAI, Perplexity and Anthropic as search options in Apple’s Safari browser in the future, according to the report.

Arm gives weak guidance
Shares of Arm tumbled more than 11% in extended trading after the chip-design company issued weaker-than-expected guidance for the current quarter. Arm projected that earnings per share will be between 30 cents and 38 cents, lower than analysts’ expectations of 42 cents. The middle range of Arm’s revenue forecast also falls short of estimates, according to LSEG. Arm beat expectations for its fiscal fourth quarter.

[PRO] How to play Trump’s ‘very big announcement’
On Tuesday, Trump disclosed during an Oval Office meeting with Canadian Prime Minister Mark Carney that he plans to make a “very, very big announcement” prior to his trip to the Middle East next week. Here’s what JPMorgan is advising its clients on how they can ride this potential tailwind for the market.

Disney announces an Abu Dhabi theme park and resort

The Walt Disney Co. announced Wednesday that it has reached an agreement with immersive destination and experiences company Miral to bring a park and resort to Yas Island in the United Arab Emirates.

This will be Disney’s seventh theme park resort and it will be fully developed and built by Miral. Disney’s imagineers will lead creative design and operational oversight on the project. The entertainment giant will not be investing capital in the project, but will reap the benefits of royalties.

Disney has slowly been entering the UAE in recent years, adding retail locations and touring entertainment shows like Broadway’s “The Lion King” and “Disney on Ice.” Disney noted that around one-third of the world’s population lives within a four-hour flight of the UAE and that the region has an addressable tourism market of around 500 million visitors.