Fed Chair Warns of Difficult Choices as Trade War Rages

Summary

WSJ What’s News: Fed Chair Warns of Difficult Choices as Trade War Rages
Release Date: April 16, 2025
Host: Alex Osola
Produced by: Pierre Bienname and Michael Kosmides

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1. Introduction to the Episode

In today's episode of WSJ What’s News, hosted by Alex Osola, the Wall Street Journal delves into the pressing economic and political issues shaping the markets. The primary focus revolves around Federal Reserve Chair Jerome Powell's recent remarks on the trade war with China and its implications for the U.S. economy. Additionally, the episode explores the impact of rising trade tensions on tech giants like Nvidia and the severe funding cuts at Harvard University affecting critical research initiatives.

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2. Federal Reserve Chair Jerome Powell's Warning

Key Discussion:
Federal Reserve Chair Jerome Powell addressed the Economic Club of Chicago, highlighting the challenging position the Fed finds itself in amid escalating trade tensions between the U.S. and China. Powell emphasized the potential conflict between the Fed’s dual mandate of promoting low inflation and maintaining a healthy labor market.

Notable Quotes:

• Powell at [00:50]:
  "We may find ourselves in the challenging scenario in which our dual mandate goals."

• Powell at [03:04]:
  "The effects of that are likely to move us away from our goals. So unemployment is likely to go up as the economy slows in all likelihood, and inflation is likely to go up as tariffs find their way. And some part of those tariffs come to be paid by the public."

Insights:

Powell articulated that significant tariff increases could lead to higher consumer prices and reduced economic activity, forcing the Fed to prioritize between controlling inflation and supporting employment. This delicate balancing act underscores the complexities of monetary policy in a volatile trade environment.

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3. Impact on U.S. Markets and Tech Stocks

Market Reactions:
Following Powell’s remarks, U.S. stock markets experienced notable declines. The Dow Jones Industrial Average dipped by approximately 1.7%, the S&P 500 fell over 2%, and the Nasdaq plunged by more than 3%, primarily driven by a substantial drop in Nvidia shares, which lost over 7%.

Key Points:

• The Commerce Department reported a better-than-expected 1.4% rise in retail sales for March, preceding President Trump's announcement of new tariffs on April 2.

• A Bank of America survey indicated that nearly half of global fund managers anticipate a hard landing for the global economy within the next year.

Notable Quote:

• Alex Osola at [00:54]:
  "Jerome Powell is warning that the Fed may find itself in a tough spot, choosing between whether to focus on inflation or fostering a healthy labor market."

Insights:

The interplay between strong retail sales data and aggressive tariff policies has heightened investor anxiety, as reflected in the spike of the CBO volatility index by nearly 9%. The weakening dollar further accentuates market instability amidst geopolitical tensions.

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4. Nvidia Caught in U.S.-China Trade Dispute

Discussion with Asa Fitch:
Asa Fitch, WSJ’s "Heard on the Street" columnist, provides an in-depth analysis of how U.S. trade restrictions are adversely affecting Nvidia, a leading player in the tech sector.

Key Points:

• The U.S. ban on Nvidia's H20AI chip sales in China and several other countries is poised to disrupt the company's revenue streams.

• Nvidia announced a $5.5 billion charge in the current quarter related to inventory and supply adjustments, with potential long-term revenue impacts ranging between $13 billion to $20 billion.

• Despite Nvidia's commitment to manufacturing supercomputers exclusively in the U.S., the Trump administration's continued trade restrictions suggest a strained relationship between the company and policymakers.

Notable Quotes:

• Asa Fitch at [04:04]:
  "Expectations for Nvidia are always very high in terms of its revenue and its outlook for the coming period... creates some uncertainty about how much Nvidia can beat those expectations in the future."

• Asa Fitch at [05:22]:
  "There’s a bit of tension between companies who want to please the Trump administration by doing more stuff in the US and a Trump administration that wants companies to disentangle themselves from China."

Insights:

Nvidia's predicament exemplifies the broader challenges faced by U.S. tech companies amid escalating trade wars. The imposition of export restrictions not only undermines their market potential but also introduces significant volatility in their financial performance, thereby affecting investor confidence.

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5. Harvard University Faces Research Funding Crisis

Discussion with Nidhi Subaraman:
Harvard University is grappling with severe repercussions following its decision to reject the Trump administration's demands regarding operational changes and student admissions policies. As a result, the administration has frozen over $2 billion in previously allocated federal funds.

Key Points:

• The immediate impact includes potential layoffs, euthanization of research animals, and halting of long-term scientific projects across multiple departments.

• Researchers are seeking alternative funding sources amidst uncertainty, threatening Harvard’s reputation as a premier research institution and its ability to attract top-tier talent.

• Federal research constitutes approximately 68% of Harvard’s incoming funding for science, underscoring the difficulty in offsetting the lost funds through private endowments, which are often restricted and not easily liquidated.

Notable Quotes:

• Nidhi Subaraman at [07:34]:
  "The fact that this has come so suddenly overnight means that he's not sure where he's going to assign the qualified staffers who are working on these projects and more broadly is concerned that advances that could help patients and bring health and treatment to them more quickly will be delayed."

• Nidhi Subaraman at [08:51]:
  "Certainly concern that uncertainty about funding will mean that people aren't going to see Harvard as much of a star place to land."

Insights:

The abrupt suspension of federal funding for Harvard’s research initiatives not only jeopardizes ongoing scientific endeavors but also poses a long-term threat to the institution’s standing in the global academic community. The scenario highlights the vulnerability of research institutions reliant on federal support amidst political tensions.

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6. Other Notable News Highlights

• Federal Judge's Ruling on Migrant Planes:
  A federal judge has ruled that the Trump administration willfully ignored a court order by failing to return planes full of migrants bound for an El Salvador prison. The judge has mandated the administration to either demonstrate efforts to comply or provide sworn testimony explaining the non-compliance by the following week, avoiding potential criminal contempt charges.

• Elise Stefanik’s Potential Gubernatorial Bid:
  Republican Representative Elise Stefanik is reportedly contemplating a run for New York governor in 2026. This follows the withdrawal of her nomination for U.S. Ambassador to the United Nations, attributed to concerns over narrow Republican margins in the House.

• UK Supreme Court's Gender Definition Ruling:
  The UK Supreme Court has ruled that only individuals born female can be legally recognized as women. This landmark decision excludes transgender women from the legal definition, paving the way for stricter regulations on female-only spaces and services. However, the court affirmed that transgender individuals remain protected against discrimination based on gender reassignment.

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7. Conclusion

Today's episode of WSJ What’s News provides a comprehensive overview of the intricate dynamics between U.S. monetary policy, international trade tensions, and their cascading effects on both the market and academic research. Jerome Powell's insights underscore the challenging trade-offs the Fed may face, while Nvidia's struggles highlight the tangible impacts of geopolitical conflicts on the tech industry. Meanwhile, Harvard's predicament serves as a stark reminder of the vulnerabilities inherent in research-dependent institutions amidst political adversities.

Stay tuned for our upcoming What’s News in Markets wrap-up on Saturday and the What’s News Sunday deep dive, where we will further explore the implications of these developments on the global economic landscape.

Produced by Pierre Bienname and Michael Kosmides. For more detailed coverage, visit the Wall Street Journal's website.

Transcript

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[Alex Osola]

US tech stocks fall as Nvidia pays the price for turning into the biggest bargaining chip between the US And China. Plus, Jerome Powell is warning that the Fed may find itself in a tough spot, choosing between whether to focus on inflation or fostering a healthy labor market.

[Jerome Powell]

We may find ourselves in the challenging scenario in which our dual mandate goals.

[Alex Osola]

Are in tension and how funding cuts at Harvard are already affecting the university's research. ALEX It's Wednesday, April 16th. I'm Alex Osila for the Wall Street Journal. This is the PM edition of what's news, the top headlines and business stories that move the world today. Trade restrictions fueled a tech stock rout that deepened in US Markets today. Stocks took another turn lower after Federal Reserve Chair Jerome Powell warned that the central bank could face difficult trade offs in trying to cushion the US Economy from the fallout of President Trump's trade. Wall Street's fear gauge, the CBO volatility index, jumped nearly 9% after falling for three trading days. The dollar, meanwhile, extended its decline. Earlier, the Commerce Department had said that retail sales rose a better than expected 1.4% in March from the previous month and before President Trump's Liberation Day announcement of sweeping new tariffs on April 2. And a survey of global fund managers by the bank of America conducted in the days after that announcement found that almost half of them expected a hard landing for the global economy in the next 12 months. In the end, US markets ended the day down. The Dow dipped about 1.7% and the S&P 500 lost more than 2%. The tech heavy Nasdaq closed down just over 3%, dragged by Nvidia that lost more than 7%. Federal Reserve Chair Jerome Powell has warned that the central bank could face difficult trade offs in trying to cushion the US Economy from the fallout of President Trump's trade war. In remarks at the Economic Club of Chicago today, Powell said large tariff increases that push up consumer prices while weakening economic activity would put the Fed in the uncomfortable position of having to choose promote low inflation or foster a healthy labor market. The Fed chair implied that the central bank could elevate its inflation goal over its labor market mandate if the two were in conflict. In the discussion that followed, Powell described the possible effects of the significant policy changes the administration is making, particularly in trade.

[Jerome Powell]

The effects of that are likely to move us away from our, our goals. So unemployment is likely to go up as the economy slows in all likelihood, and inflation is likely to go up as tariffs find their way. And some part of those tariffs come to the come to be paid by the, by the, by the public.

[Alex Osola]

Powell repeated his view that the central bank doesn't need to rush to lower interest rates while nodding to a fluid economic outlook. As we reported this morning, Nvidia told investors that the US is banning the sale of its H20AI chips in China and a handful of other countries. Nvidia is now caught between the world's two superpowers as they jockey to take the lead in AI development and could hurt the company's relationship with Wall Street. WSJ Heard on the street columnist Asa Fitch joins me now with more ASA the H20 is not a huge part of Nvidia sales, yet it seems the government's restriction could create an issue for the company's performance on Wall Street. Right.

[Asa Fitch]

Expectations for Nvidia are always very high in terms of its revenue and its outlook for the coming period. Investors have gotten used to Nvidia always beating expectations for revenue and growing at a insane rate. This problem in China, which represents a pretty significant part of their revenues, creates some uncertainty about how much Nvidia can beat those expectations in the future.

[Alex Osola]

As we mentioned in this morning's show, the company says it'll take a five and a half billion dollar charge in the current quarter. Is that all the financial effect they're expecting from this or is there a longer term impact?

[Asa Fitch]

There is a longer term impact. Five and a half billion in the current quarter relates to inventory and other sorts of supplies and things. They need to put these things together, those supplies and that inventory and that other stuff that they're taking a charge on represents a much greater amount of revenue that the company would otherwise have received. Some analysts estimate it's about $13 billion. I've seen one analyst report suggesting something like $20 billion of revenue this year. And so it is a pretty significant hit beyond just the $5.5 billion charge that made the headlines.

[Alex Osola]

This move from the government comes a day after Nvidia says it'll make supercomputers entirely in the US where does that fit in with all of this?

[Asa Fitch]

Well, there's a bit of tension between companies who want to please the Trump administration by doing more stuff in the US And a Trump administration that wants companies to disentangle themselves from China. Nvidia is playing this game just like everybody is. And they made this commitment. Some analysts see that as part of a quid pro quo. We'll scratch your back. Trump administration, you scratch ours. Trump administration in making this move, seems like they're not scratching Nvidia's back too much. And that move a few days ago to invest in the US does not seem to have changed the calculus of the folks in charge in Washington. So for Nvidia, maybe that's a hard lesson. We'll see how it plays out, though. One thing that we've seen in the past is that the policy around tariffs, around export restrictions, these things are changing all the time.

[Alex Osola]

That was WSJ Heard on the street columnist Asa Fitch. Thanks so much, Asa.

[Asa Fitch]

Thank you.

[Alex Osola]

Coming up, research goes on pause after Harvard pushes back against the Trump administration. That's after the break.

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[Alex Osola]

Harvard University scientists are facing the prospect of laying off staff, euthanizing research animals and bringing years long science projects to a halt as a freeze on federal funds looms. On Monday, after the university rejected government demands to change its operations and how it admits students, the Trump administration said it would stop more than $2 billion in funds previously awarded to the school. Stop work orders began arriving soon after. For more on what this means for Harvard, I'm joined by Nidhi Subaraman, who covers science for the journal. So, Nidhi, what does the pause in grant funding mean for research at Harvard?

[Nidhi Subaraman]

This is something that researchers are still trying to put together. I spoke to a few people who had received these stop work notices after Harvard had announced its decision to reject the administration's demands as far as how it operates and how it picks students. And they were looking at basically icing work that in some cases had been going on for a long time. One researcher who is running a international tuberculosis study. She has to potentially euthanize her research monkeys that are involved in the study and bring work that you know affects 14 different labs to a halt. Another researcher is looking at early detection of als, Lou Gehrig's disease from the blood, and he's looking at seeking other sources of funding. But the fact that this has come so suddenly overnight means that he's not sure where he's going to ass the qualified staffers who are working on these projects and more broadly is concerned that advances that could help patients and bring health and treatment to them more quickly will be delayed.

[Alex Osola]

How will this pause in funding affect the university's ability to attract and keep top researchers there?

[Nidhi Subaraman]

Certainly concern that uncertainty about funding will mean that people aren't going to see Harvard as much of a star place to land. I did hear that new recruits are considering not coming and together with the other turbulence that research has been facing as far as broader uncertainty about whether federal agencies will have money, when they will come and the other disruptions. Certainly staffing is a key concern at faculty and labs across not just Harvard, but universities everywhere.

[Alex Osola]

So what are Harvard's options in terms of funding? I mean, could it find another way to back its research?

[Nidhi Subaraman]

The truth is, federal research support is the bulk of support that Harvard gets for research, 68% of its incoming funding for science last year. This is not something that they could make up easily. I know people talk about the Harvard endowment of over $50 billion, but a lot of that funding is committed and has restrictions on it. It's not something you can liquidate easily. And certainly if you're Talking about nearly $700 million per year, it's not something that you can look at recouping.

[Alex Osola]

That was WSJ reporter Nidhi Subaraman. Thank you so much, Nidhi.

[Nidhi Subaraman]

Thank you.

[Alex Osola]

To read more about how Harvard ended up leading the college fight against Trump, check out the link we've left for you in the show notes. And be sure to check out our upcoming what's New Sunday episode as we explore what a loss of grant funding means for universities. Bottom line. In other news, a federal judge has found that the Trump administration willfully disregarded a court order when it failed to return planes full of migrants on their way to a prison in El Salvador. The judge ordered the government to act quickly to avoid possible prosecution for criminal contempt. He ordered the government by next week to either show him an attempt to remedy the violation or provide information from administration officials under oath about the decision. Republican Representative Elise Stefanik is considering a run for New York governor in 2026. That's according to people familiar with the matter. President Trump nominated her late last year to be the U.S. ambassador to the United nations, but the administration withdrew her nomination last month, citing concerns about the tight margins for Republicans in the House. And the UK Supreme Court ruled today that only those born female can be considered women. The landmark judgment excludes transgender women from the legal definition and paves the way for stricter limits on female only spaces and services. Britain's top court said trans people would still be protected from discrimination on the basis of gender reassignment. And a trans woman could claim sex discrimination because she is perceived to be a woman. And that's what's news for this Wednesday afternoon. Today's show was produced by Pierre Bienname with supervising producer Michael Kosmides. I'm Alex Osola for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.