Jerome H. Powell, the Federal Reserve chair, kept future interest rate cuts squarely on the table on Friday while stressing that the central bank’s powers to right the economy were limited by President Trump’s trade policies, which continue to pose risks to the economic outlook.
“While monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rule book for international trade,” Mr. Powell said, speaking from prepared remarks in Jackson, Wyo., at the Federal Reserve Bank of Kansas City’s annual symposium.
“Our challenge now is to do what monetary policy can do to sustain the expansion” to achieve the Fed’s goals, he said.
Mr. Powell’s remarks indicated that the Fed, which cut interest rates in July for the first time in a decade, remains willing to cut again. But his reluctance to clarify the timing or size of any such move highlighted the central bank’s predicament: Unemployment is low and consumer spending is strong, but Mr. Trump’s trade conflict is stoking uncertainty, weighing on manufacturing and roiling markets.
“Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States,” Mr. Powell said, adding that there were “no recent precedents to guide any policy response to the current situation.”
His comments followed Beijing’s announcement on Friday that China would retaliate against Mr. Trump’s next round of tariffs by increasing taxes on $75 billion of American imports, including agricultural products, crude oil and cars. China and the United States plan to increase their levies in September and December, which could create more economic harm.
Against that backdrop, some members of the policy-setting Federal Open Market Committee support rate cuts to shore up growth, while others want to wait to monitor how the dispute plays out.
“Risk management enters our decision making because of both the uncertainty about the effects of recent developments and the uncertainty we face regarding structural aspects of the economy,” Mr. Powell said on Friday.
Mr. Trump has made no secret that he wants a big rate cut. He regularly criticizes the Fed on Twitter and in speeches, urging it to cut rates more aggressively to even the playing field with trading partners like China and Germany. “Our Federal Reserve does not allow us to do what we must do,” he said in a tweet on Thursday, adding that they “move like quicksand. Fight or go home!”
On Friday, Mr. Trump said on Twitter that the strong economy should give the Fed confidence to cut.
Investors fully expect a rate cut in September and anticipate another before the end of the year, based on market pricing measured by the CME Group.
Fed officials often point to two mid-1990s rate-cutting cycles as rough templates for how the central bank is approaching policy now. In both instances, Fed officials cut rates by 75 basis points to help get the economy through rough patches.
Mr. Powell referred to those episodes in his remarks on Friday, noting that “the Fed was cutting, not raising, rates in the months prior to the end of the first two expansions in this era, and the ensuing recessions were mild by historical standards.”
Speaking earlier on Friday on Bloomberg Television, James Bullard, the president of the Federal Reserve Bank of St. Louis, said those examples offered a “great baseline” for reference in setting policy now, although he did not commit to matching their size.
“That’s what they did in the ’90s,” Mr. Bullard said. “I don’t know where we’ll end up.”