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Trump's trade policy a big problem for the Fed, Powell says

Markets fall as China announces tariffs
Markets drop as China announces tariff hike on U.S. products 00:40

The White House's trade policies are a big problem for the Federal Reserve, as Chairman Jerome Powell outlined in a speech on Friday.

Powell offered no clear guidance on future interest-rate cuts in his remarks to a gathering of central bankers in Jackson Hole, Wyoming. But he pointed to evidence of weakening global economic growth, suggesting that uncertainty stemming from the escalating trade war between the U.S. and China is contributing to the slowdown. 

"We have much experience in addressing typical macroeconomic developments," Powell said. "But fitting trade policy uncertainty into this framework is a new challenge. Setting trade policy is the business of Congress and the Administration, not that of the Fed."

Although "monetary policy is a powerful tool that works to support consumer spending, business investment and public confidence, it cannot provide a settled rulebook for international trade," he added.

While unemployment and inflation in the U.S. both remain low, the domestic economy is also slowing down after a growth spurt last year, Powell said. At the same time, other major economies, including Europe and China, are slowing.

Economists worry Trump's trade war with China could slow economic growth 02:24

President Donald Trump has repeatedly lashed out at Powell in increasingly personal terms, accusing the Fed of undermining economic growth by not moving fast enough to cut interest rates. The central bank last month trimmed the federal funds rate for the first time since the 2008 financial crisis. 

Just before Powell's speech, China said it would hike tariffs on U.S. products in response to a previous round of levies on Chinese imports Mr. Trump announced this month. The president promptly blamed China's move on the Fed, tweeting, "My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?"

Mr. Trump also said that he "hereby ordered" U.S. companies to find new supply chains or move their operations to the U.S.

As if to prove Powell's point, financial market sank Friday following the latest signs of trade discord. The Dow lost more than 420 points, or 1.6%, with the S&P 500 and the Nadsaq also slumped.

"The market will likely end down today because of trade war escalation, and this has already overshadowed the Jackson Hole speech," Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance, said in a note.

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