Federal Reserve Chairman Jerome Powell offered a grim warning about President Trump’s tariff scheme, prompting markets to drip on Wednesday afternoon. 

“The level of the tariff increases announced so far is significantly larger than anticipated. The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” Mr. Powell said while speaking at the Economic Club of Chicago. 

He emphasized the unprecedented nature of Mr. Trump’s tariff policy, noting that “There isn’t a modern experience of how to think about this.” During the question-and-answer session following his speech, Mr. Powell suggested that tariffs are “likely to move us further away from our goals” of lower inflation “probably for the balance of this year.”

Mere minutes after Mr. Powell’s speech, stocks began to tumble. By market close, the S&P 500 was down 2.5 percent and the Nasdaq Composite fell 3.5 percent. The Dow Jones Industrial Average slipped by 690 points, or 1.7 percent. 

The concerning economic outcome that Mr. Powell warned of — waning growth and rising prices — is known as stagflation, and hasn’t played out in America for nearly half a century. Such a scenario, Mr. Powell said, pits the Fed’s dual mandate of stable prices and low unemployment against itself. 

“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Mr. Powell said. “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.”

When inflation is high, the Fed will usually raise interest rates, making it more expensive to borrow money, and reducing demand. If growth is slow, the Fed is inclined to lower interest rates to stimulate the economy. 

Mr. Powell did not offer the Fed’s outlook for the direction of interest rates, but said that “For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.”

The Fed’s next monetary policy meeting is set for May 6-7.