Federal Reserve Chairman Jay Powell said Friday that the central bank is facing a “new challenge” as it tries to shape monetary policy to address trade conflicts.

With the U.S.-China trade war escalating again as Beijing on Friday imposed a new round of tariffs, Powell indicated the Fed may be limited in its ability to overcome the economic uncertainty arising from the conflict.

Fitting “trade policy uncertainty” into the Fed’s monetary policy-making framework is a “new challenge,” he told the Federal Reserve Bank of Kansas City’s annual symposium in Jackson Hole, Wyoming.

Jerome Powell

“In principle, anything that affects the outlook for employment and inflation could also affect the appropriate stance of monetary policy, and that could include uncertainty about trade policy,” he said. “There are, however, no recent precedents to guide any policy response to the current situation.”

Monetary policy “cannot provide a settled rule book for international trade,” Powell cautioned, but “We are examining the monetary policy tools we have used both in calm times and in crisis, and we are asking whether we should expand our toolkit.”

Powell’s comments almost instantly drew another volley of vitriol from President Trump, who has repeatedly criticized him for not cutting interest rates more aggressively amid signs of slowing economic growth.

“My only question is, who is our bigger enemy, Jay Powel [sic] or Chairman Xi?” Trump tweeted.

Powell indicated Friday that the Fed, which reduced interest rates in July for the first time in a decade, remained willing to cut again in order to keep the economy growing. The markets are expecting another cut in September.

“Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States,” Powell said.

Ian Shepherdson, chief U.S. economist at Pantheon Macroeconomics, said Fed officials are in an unenviable position. “All their analysis and forecasts can be upended by a single tweet, so the policy-making process has been wrecked, even without the overlay of the president railing at the Fed,” he told The Wall Street Journal.

Xinhua/Liu Jie via Getty Images

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