Tariffs and Inflation: What Powell’s Warning Means for Market Cycles
- 1 day ago
- 5 min read
The Federal Reserve’s latest press conference was light on surprises but heavy with long-term implications. While many traders were hoping for clarity around rate cuts, Powell gave them something more subtle—and in many ways, more important.
He reminded us that inflation remains the Fed’s top priority, especially as new external risks—like surging tariffs—threaten to undo recent progress. “If the large increases in tariffs that have been announced are sustained,” Powell said, “they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment.”
For traders watching cycles, that comment matters a lot. Because when you combine rising macro pressure with already elevated interest rates and a market nearing a projected peak, the setup becomes less about policy speculation and more about structural confirmation. Understanding how these dynamics interact helps traders stay on the right side of risk and avoid emotional decisions driven by headline noise.
What We Know About Tariffs and Inflation
Tariffs, by their nature, are inflationary. They raise the cost of imported goods, disrupt efficient trade flows, and often lead businesses to increase prices in order to protect margins. The broader the scope of the tariffs, the more those cost increases filter into consumer prices and corporate operations.
The new round of tariffs announced by the Trump administration is broad and aggressive:
145% tariffs on Chinese imports
10% tariffs on a wide range of other international goods
The timing is especially delicate. After a year of slowing inflation, this policy change threatens to reignite price pressures—just as the Fed was finally seeing some traction. It also puts more pressure on future inflation readings, which could delay or even derail any potential rate cut plans.
This isn’t just theory. Companies are already reporting tighter margins, reduced order volume, and increased uncertainty in forward guidance. In prior cycles, this combination has marked the start of broader risk-off moves, especially when paired with elevated policy rates.
Why Powell’s Tone Signals a Structural Warning
Powell’s warning was clear: sustained tariffs could reverse inflation progress and tighten financial conditions even further. That tells us something important about the Fed’s stance:
They are in no hurry to cut
They are watching labor data closely
They are aware that fiscal and trade policy—not just monetary tools—will shape inflation from here
This reinforces the idea that we are not in a typical soft-landing setup. If inflation holds steady or rises again because of policy friction, the Fed may be forced to stay restrictive longer. That gives cycles time to complete naturally, without the artificial boost of early rate cuts.
From a structural standpoint, this means the Fed will be hands-off during the most vulnerable stage of the cycle — the topping phase. Historically, those periods produce the sharpest reversals when macro pressure aligns with technical exhaustion.
If you want to dive deeper into how macro forces like tariffs intensify inflation at key turning points, Check our post on Do Tariffs Increase Inflation? Why Rising Macro Pressure Aligns with Cycle Tops for more info.
What the Visualizer Cycles Show Now
The current cycle timing reinforces the message Powell delivered. Structural fatigue is already in motion.
SPY and QQQ are both showing projected intermediate cycle peaks forming between May 9 and May 12
The short-term momentum cycle already peaked last week, adding downward pressure
Volume and breadth have begun to weaken, especially in previously leading sectors like tech and discretionary
This structure is consistent with a late-stage rally, not a breakout. The rally off the April 7 “Liberation Day” low has been strong—but it’s now nearing exhaustion. This exhaustion is visible not only in price momentum, but in sector participation, crossover narrowing, and rolling cycle slopes.
If tariffs add fresh inflation pressure in the coming weeks, and the Fed holds firm on rates, it adds another layer of resistance. Price structure is already tight. The macro backdrop now reinforces the same risk — giving cycle timing more weight than ever.
Why Traders Shouldn’t Chase Strength
The market doesn’t fall just because Powell makes a hawkish comment—but cycles do roll over when macro stress aligns with structural fatigue.
Right now, traders who chase strength are fighting multiple forces:
Declining short-term momentum
Deteriorating breadth across sectors
Projected cycle tops coming into view
Tight stops beginning to trigger across trend-following models
Late-stage rallies are typically marked by low-volume breakouts, weak participation, and overly bullish sentiment. These are not setups to press — they are warnings to prepare.
Just because price hasn’t cracked doesn’t mean risk isn’t rising. Traders who wait for confirmation and protect capital will have better positioning when the next low sets up. That’s how professional capital behaves — and it’s how Steve teaches tactical discipline.
What Smart Traders Are Asking Now
How exactly do tariffs impact market structure?
Tariffs increase uncertainty and reduce efficiency in supply chains. They raise input costs, reduce margins, and dampen corporate forward guidance. That means less confidence in earnings, more pressure on valuation multiples, and tighter overall structure.
In turn, that leads to less conviction from institutional buyers. Once the market realizes margins are compressing, they stop pressing longs and begin protecting prior gains. That structural shift usually happens quietly — and then all at once.
Will inflation from tariffs delay the Fed’s next move?
Yes. Powell made it clear that tariffs could sustain inflation longer than expected. If that happens, the Fed will not ease. They are data-dependent—but data distorted by policy still counts.
This delay in cuts keeps the pressure on the valuation side of the market. Without lower rates, overvalued areas can’t justify premium pricing. That’s where the structure starts to break down — not on headlines, but in forward models.
Could this delay the next bull market leg?
Absolutely. If inflation resurges and the Fed is forced to remain restrictive, any pullback may drag out longer than traders expect. Structural recovery needs both time and confirmation—not just hope.
A true next leg up requires:
Cycle bottoms to align
Breadth expansion
Earnings improvement
Volume-led upside confirmation
Until those align, traders should remain cautious — not bearish, just tactical.
Is this an actionable short setup?
Not yet. We wait for confirmation:
Break below the 5-day price channel
Violation of the 3/5 crossover average
Spike in volume on down days
Until then, the trade is about reducing risk, not jumping ahead. Steve’s method is rooted in waiting for confirmation. When structure breaks, opportunity increases. Until then, protect gains.
What’s the best way to navigate this?
Stick with the structure. Don’t let policy headlines dictate trades. Use projected cycle timing and crossover confirmation to manage exposure. Avoid reactionary trades. Let structure tell the story.
Resolution to the Problem
The problem isn’t tariffs. It’s what they do to structure.
Powell’s warning should be viewed not as a surprise—but as validation of what the cycles already suggest. If inflation re-accelerates and the Fed stays sidelined, the current market push is likely to stall.
That doesn’t mean collapse—but it does mean you shouldn’t expect follow-through without confirmation. And when the market needs confirmation but doesn’t get it, that’s when late longs become vulnerable.
At Market Turning Points, we help you:
Track macro pressure inside structural setups
Navigate volatile periods with crossover-based discipline
Time exits and re-entries using projected momentum and cycle windows
Because every cycle turns — but only the confirmed ones offer real opportunity.
Join Market Turning Points
Don’t guess what comes next. Use tools that show you where structure is strong—and when it’s beginning to crack.
Daily cycle projections
Visual confirmation of crossover shifts
Tactical trade zones based on momentum and breadth
Stay one step ahead of macro pressure and sentiment shifts. Trade structure, not headlines.
Conclusion
Tariffs and inflation are making headlines again—but smart traders know the real story lies in structure.
With Powell reaffirming a data-dependent, inflation-first policy, and cycles projecting a topping window into mid-May, the next move is not about predicting—it’s about confirming.
Stay patient, manage risk, and don’t chase headlines. Let the structure lead.
That’s how you stay ahead.
That’s the Market Turning Points edge.
Author, Steve Swanson
