The rapid escalation, which tanked stock markets and drove bond yields lower, could force the Fed to cut rates. Indeed, data reported as Powell was speaking on Friday showed further deterioration in the US housing market, on the heels of figures earlier in the week showing weakness in the manufacturing sector.
The Fed cut rates for the first time in more than a decade last month, backing Powell's verbal commitment to sustain the expansion with action. Powell on Friday made clear that commitment is still in place in a speech he gave at an annual Fed retreat at a Jackson Hole valley resort set against the Grand Teton mountains. He said there are "significant" risks to the economy, including the trade dispute, the chaotic British exit from the European Union, tension in Hong Kong and signs of a global economic slowdown.
But he also said the domestic US economy is in a "favourable place" now and he stressed limits to Fed policy to respond to the trade issues. He also said officials need to "look through" short-term turbulence. The speech stopped short of endorsing or signalling the rate cuts markets widely expect and that Trump has demanded.
There are "no recent precedents to guide any policy response to the current situation," Powell said, adding that monetary policy "cannot provide a settled rulebook for international trade."