Financial markets took their latest turn after President Donald Trump threatened last week to slap new tariffs on Mexico unless it stemmed migrant flows to the U.S. That comes atop deteriorating negotiations between the U.S. and China over a lengthy list of trade and commercial disputes that have led to raft of new levies in both directions.

Speaking at Fed conference in Chicago Tuesday, Powell referred to “trade negotiations and other matters,” before saying, “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.”

Clarida later told CNBC television the Fed will watch incoming economic indicators carefully to determine whether any move is warranted.

“As we said in May, we think policy was in a good place then and we’re going to let the data flow in to indicate if we need to make any adjustments,” Clarida said. “Whether or not that means acting preemptively or when the data comes in is just going to depend on the context at the time.” The Fed in May pledged to be “patient” as it judges future rate moves.

Fed Governor Lael Brainard reinforced that message in an interview Wednesday with Yahoo! Finance in which she said the U.S. consumer has been strong but trade uncertainty was a downside risk.

Data Points
Officials will get two important new data points this week. A gauge of U.S. service industries, the ISM non-manufacturing index for May, is due out Wednesday, while the Labor Department is scheduled to release its May jobs report Friday.

“The Fed is being just as patient about lowering rates as it was about raising rates,’’ said Mark Vitner, a senior economist at Wells Fargo & Co. in Charlotte, North Carolina. “While the markets have reacted so viscerally to the ratcheting up in the trade rhetoric, the Fed needs some time to see how it will play out.’’

James Bullard, head of the St. Louis Fed and also a voter this year, became the first policy maker to signal likely support for a rate cut. In a speech Monday he said a reduction “may be warranted soon” to boost below-target inflation.

The prospect of lowering rates will likely cause some unease at the Fed. That’s because with the target range for their benchmark rate currently at 2.25% to 2.5%, officials are already wringing their hands over how little room they have to slash borrowing costs in the event of a recession before hitting zero.

In remarks linked to those longer-run worries, Powell on Tuesday said the proximity of rates to zero represented “the preeminent monetary policy challenge of our time.”