Indeed, if the Fed does cut rates this year, it would be a remarkable rejection of the general inflation hawkery that has guided the central bank for decades.
"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 said of trade negotiations in a statement prepared for a monetary policy conference in Chicago last week.
Powell, in a speech last week, opened the door to interest-rate cuts after holding in May that below-target inflation was due to transitory factors.
"We are closely monitoring the implications of these developments for the United States economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labour market and inflation near our symmetric two percent objective". This is what the Fed tried to do to reduce unemployment in the 1970s, and we didn't get jobs; we got runaway inflation. "They don't have a clue!" wrote Trump, who has long broken with decades of precedent set by previous US presidents who distanced themselves from the nation's monetary policy. But a cut of 0.25 percentage points or even 0.5 percentage points is extremely like to be announced in July. "They raised interest rates far too fast". Similarly, Mexico is on notice that it must help us end the humanitarian crisis created by mass illegal immigration from Central America - or suffer penalties in the form of across-the-board tariffs.
Other trade threats, including unresolved tensions with China and the potential for the U.S.to impose tariffs on auto imports from Japan and the European Union, still loom. The market gives a 79.1% chance of a Fed rate cut in July, up from around 20% a month ago. The economy grew at a 3.1% pace in the first quarter.
The Swiss franc rose 0.2% to 1.1215 francs per euro after the Swiss National Bank said it could further relax its ultra-loose monetary policy but did not sound as concerned about the economic outlook as some analysts had expected. "They haven't listened to me", Trump said in a CNBC interview.
Consumer Price Index data on Wednesday, which is closely watched by the Federal Reserve, is the next inflation indicator.
Capital flows tend to move in the direction of the most advantageous or improving returns, with lower rates normally seeing investors driven out of and deterred away from a currency while rising rates have the opposite effect.
Arguing against a big reduction: It could spook investors into thinking that the Fed was panicking, and that the economy is in a lot worse shape than it actually is.
Here's the problem: Once again, the Fed board has stumbled upon the right conclusion for the wrong reason.
This was rightly taken as a clear message that if the trade and economic warfare measures of the Trump administration against China adversely impact financial markets, the Fed is ready to step in with a market-boosting cut in rates in order to sustain the largest bull-run in history.
But that's a risk it seems willing to take.