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

Today’s agenda: Meloni meets Trump; Santander overtakes UBS; US probe on DeepSeek’s Nvidia chips; the UK’s microwave anti-drone weapon; and is the global dollar over?

---

Good morning. We start with the Federal Reserve chair’s assessment of the US economy amid Donald Trump’s trade war and ahead of the central bank’s interest rate decision early next month.

What did Jay Powell say? The Fed chair said the tariffs announced so far had been “significantly larger than anticipated” and “the same was likely to be true of the economic effects, which will include higher inflation and slower growth”. Powell also warned that Trump’s trade policies were “likely” to put at risk the Fed’s goals of keeping prices and unemployment in check. “Without price stability, we cannot achieve long periods of strong labour market conditions,” he added.

Looking ahead: US rate setters could be placed “in the challenging scenario in which our dual-mandate goals are in tension”, said the Fed chair. “If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close,” Powell said in prepared remarks.

Here’s more from his speech at the Economic Club of Chicago. For more on monetary policy, sign up for our Central Banks newsletter by Chris Giles if you’re a premium subscriber, or upgrade your subscription.

• Corporate loyalty: Switching tariffs on and off, and granting exemptions for political allies, is not about trade policy, writes US senator Chris Murphy, but about bringing US industry to heel.

• China-EU trade: Beijing is seeking a rapprochement with Brussels amid Trump’s trade war, but hurdles remain.

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

• EU interest rates: The European Central Bank is widely expected to lower borrowing costs in its decision.

• Meloni in Washington: Italy’s prime minister will seek to jump-start trade talks between the EU and US when she meets Trump.

• Companies: BP holds its annual meeting. American Express, Blackstone, Netflix, Sainsbury’s and State Street report results, while Deliveroo and Charles Schwab have trading updates. Chinese tea chain Chagee hopes to raise nearly $400mn in its New York debut today.

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

2. US lawmakers are investigating whether China’s DeepSeek used restricted Nvidia chips to power its app. A House of Representatives panel has called the Chinese artificial intelligence company a “profound threat” to US national security.

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

• US-China: The Trump administration has imposed sanctions on a Chinese refinery for buying Iranian crude oil as it increases pressure on Beijing and Tehran.

3. Exclusive: 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. The US has halted a $5bn offshore wind project that Norway’s Equinor is developing off the coast of New York, accusing the previous Biden administration of a rushed and insufficient analysis when it approved the group’s plans. The move marks the latest escalation in the Trump administration’s offensive against clean energy.

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. Scientists were using a space telescope to study K2-18b, a distant water-covered planet that is 8.6 times bigger than Earth. Here’s what they detected.

The Big Read

The dollar, which normally strengthens in times of financial and economic strife, instead nosedived after Trump unveiled his “reciprocal” tariffs this month. Coupled with the administration’s hostility towards historical allies, investors have been forced to confront the possibility that the currency’s dominance might fade — or even end.

We’re also reading . . . 

• Russia: By giving heating systems maker Ariston back to its Italian owner, Moscow hopes to show western companies a path back into the Russian market.

• The ‘Chinese dream’: Xi Jinping’s vow of a “great renewal” is no less a political anchor for China than Maga is for Trump’s America, writes Stephen Roach.

• European defence: Belgium’s FN Herstal, which supplied Nato armies during the cold war, is still making machine guns for Europe today — by hand.

• Microwave weapon: The UK has successfully trialled the “RapidDestroyer”, which uses a high-power radio frequency to fry drone swarms at a distance.

Chart of the day

Tech stocks led a Wall Street sell-off yesterday after Nvidia revealed that new US controls on sales to China would wipe billions of dollars from its earnings, dragging its peers sharply lower.

Take a break from the news

It is easier to acknowledge the less good parts of yourself when you’re told they were predetermined by the stars, writes Jemima Kelly. Follow the FT’s resident contrarian as she tries to make sense of astrology.