WASHINGTON — Chairman Jerome Powell said Tuesday that the Federal Reserve is prepared to respond to the Trump administration’s trade conflicts to protect the U.S. economy, signaling that the Fed will cut interest rates if necessary.
Speaking at a Fed conference in Chicago, Powell said, “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion.”
Powell didn’t explicitly say what the Fed would do if it concluded that the administration’s trade conflicts were damaging the economy. But expectations are rising that the Fed will cut rates at least once and possibly twice before year’s end, in part because of the consequences of the trade war. There is also concern that the U.S. economy faces a growing risk of a recession.
Trump has imposed far-reaching tariffs on imports on China, which has retaliated with tariffs of its own on U.S. exports. He also has threatened to impose an escalating series of tariffs against Mexico unless Mexico stops a flow of migrants from Central America into the U.S. At a press conference in London, President Donald Trump reiterated that his import taxes on goods from Mexico will start taking effect next week at a level of 5%, rising to a peak of 25% until Mexico complies with his demand to cut off Central America migration.
Powell noted that the Fed is conducting its first-ever public review of its operations and will focus on ways to improve its rate strategies, the tools it uses to achieve its objectives and the way it communicates its actions to the public.
He called persistently low inflation the “preeminent monetary policy challenge of our time,” because it limits the Fed’s ability to support the economy by cutting rates.