Fed's Powell signals he's open to a rate cut as Trump's trade wars escalate

Federal Reserve Chairman Jerome Powell on Tuesday said the central bank was keeping a close eye on escalating trade tensions and that officials were ready to take action if conditions worsen.

Expectations for the Fed to slash interest rates have grown dramatically among investors in recent weeks as global trade disputes escalate.

The probability that the Fed will cut its benchmark interest rate at a policy meeting in July has jumped to about 60%, according to CME Group's FedWatch tool.

Federal Reserve Chairman Jerome Powell on Tuesday said the central bank was keeping a close eye on escalating trade tensions and signaled that officials were ready to take action if conditions deteriorated.

“We are closely monitoring the implications of these developments for the US economic outlook and, as always, we will act as appropriate to sustain the expansion,” Powell said of trade negotiations in a statement prepared for a monetary policy conference at the Chicago Federal Reserve.

The Federal Open Market Committee last increased its benchmark interest rate in December, bringing it to a target range of between 2.25% and 2.5%. Officials have signaled the central bank sees zero hikes this year and one at the end of 2020.

Expectations for a rate cut have grown dramatically among investors in recent weeks as global trade disputes escalate. The probability that the Fed will cut its benchmark interest rate at a policy meeting in July has jumped to about 60%, according to CME Group's FedWatch tool.

President Donald Trump has increased tariffs on China and laid out plans to expand them to all imports, putting the largest economies at an impasse in trade negotiations. In a separate move last week, he threatened to levy duties on all imports from Mexico.