WASHINGTON — Federal Reserve Chairman Jerome Powell said Tuesday the economic outlook has become cloudier since early May, with rising uncertainties over trade and global growth causing the central bank to reassess its next move on interest rates.
Speaking to the Council on Foreign Relations in New York, Powell said the Fed is now grappling with the question of whether those uncertainties will continue to weigh on the outlook and require action.
Powell did not commit to a rate cut, but said the central bank will closely monitor incoming data and be prepared to "act as appropriate to sustain the expansion."
"The crosscurrents have re-emerged, with apparent progress on trade turning to greater uncertainty, and with incoming data raising renewed concerns about the strength of the global economy," Powell said.
Many economists believe the Fed could decide at its next meeting on July 30-31 to cut its key policy rate, something it has not done since 2008.
But financial markets were disappointed with Powell's comments, which suggested a rate cut was not certain. That followed separate comments Tuesday by James Bullard, head of the Fed's St. Louis regional bank, who said that he believed a quarter-point cut in July would be sufficient as an insurance move against a possible severe economic slowdown.
Bullard last week cast the lone dissent from the Fed's decision to hold rates steady, favoring instead an immediate rate cut.
Trump on Monday tweeted that the Fed "blew it" by not cutting rates at its meeting last week. At that session, the Fed kept its policy rate unchanged in a range of 2.25 percent to 2.5 percent, but dropped a previous pledge to be "patient" in changing rates in coming months.
Trump reportedly has considered either firing Powell or demoting him from the chairman's job, but he has been told by the White House legal team he does not have the power to do either.
Asked about the repeated criticism by Trump, Powell said, "We are human. We make mistakes. I hope not frequently, but we will make mistakes. But we won't make mistakes of integrity or character."
Powell said the Fed's independence from direct political control had served the country well and when central banks do not have that protection, "you see bad things happening."
The baseline outlook for the U.S. economy remains favorable for continued growth, Powell said, but "the risks to this favorable baseline outlook appear to have grown."
In early May, Trump more than doubled the tariffs on Chinese goods after U.S.-China trade talks broke down. The president threatened to essentially hit all Chinese imports with tariffs if China does not meet its demands for greater protections for U.S. technology.
Trump's moves sent financial markets tumbling because of concerns the trade conflict could end the current 10-year economic expansion, which in July will become the longest in U.S. history.
Trump is scheduled to meet Chinse President Xi Jinping later this week at the Group of 20 economic summit in Japan, a meeting that will be closely watched for signals that the two sides are prepared to resume talks in search of a trade deal.
In addition to rising trade tensions, Powell said since May incoming data has raised new concerns about the strength of the global economy, noting tentative signs that investment by U.S. businesses has slowed from earlier this year.