Stagflation threat looms as tariffs take effect: BlackRock’s Ben Powell

As new tariffs on Canada, Mexico, and China come into force, markets are bracing for potential economic turbulence. Ben Powell, Chief Middle East and Asia Pacific Investment Strategist at BlackRock Investment Institute, has warned that the US is shifting towards a “stagflation shock,” which could severely limit the Federal Reserve’s ability to manoeuvre.Retaliatory measures are already in motion, with Canada announcing its own countermeasures, prompting concerns of a tit-for-tat escalation. Powell stated that this uncertainty is now a structural reality that investors must adapt to in the coming years.

Powell said that higher costs from tariffs will likely make people and businesses spend less, leading to slower growth. This is a real concern for the market, but it’s only part of the picture. The added costs on construction and imports should also push prices up, making inflation worse. Powell worries that the market isn’t paying enough attention to this inflation risk.

“It is that uncertainty which is something that we do know. We don’t know exactly if the tariffs are going to persist in what numbers, but the tariff uncertainty, for sure, is already weighing on sentiments, both in markets and economies,” he added.Read Here | Donald Trump confirms 25% tariffs on Canada, Mexico to go aheadThis situation creates a stagflation shock—both slower growth and higher inflation. Right now, markets are mainly focused on the slowdown, but inflation is also a big issue. This could leave the Federal Reserve with fewer options to respond. Some hope the Fed might cut rates to support growth, but Powell isn’t convinced.

At BlackRock Investment Institute, they believe the Fed, like everyone else, is waiting to see how much inflation rises due to these tariffs, which could have a major impact.

Powell also highlighted the importance of diversification. “Time in the market is important rather than timing the market. So as best we can, let us try to stay invested, well diversified, and more active in our investment approach.”

He stated BlackRock’s conviction in artificial intelligence as a strong investment theme and pointed to Japan’s corporate governance reforms as another opportunity.

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