By Nick Timiraos 

Federal Reserve officials are debating whether uncertainty over the Trump administration's trade policy will cause the economy to slow and warrant rate cuts later this year, Fed Chairman Jerome Powell said in remarks set for delivery Tuesday afternoon.

Many Fed officials "judge that the case for somewhat more accommodative policy has strengthened," Mr. Powell said in opening remarks before the Council on Foreign Relations in New York. "But we are also mindful that monetary policy should not overreact to any individual data point or short-term swing in sentiment. Doing so would risk adding even more uncertainty to the outlook."

Fed officials agreed last week to hold their short-term benchmark rate steady in a range between 2.25% and 2.5%, but more officials projected a weaker economic outlook could warrant lower rates this year. The Fed's next scheduled meeting is July 30-31.

Mr. Powell said the central bank had a relatively optimistic outlook for the economy until early May. After that, trade negotiations between Washington and Beijing faltered, leading President Trump to increase tariffs on Chinese goods -- and data on global growth turned weaker. Mr. Trump also threatened to impose tariffs on Mexico but suspended them before they took effect.

"Limited available evidence we have suggests that investment by businesses has slowed from the pace earlier in the year," Mr. Powell said. The risks to what had been a favorable outlook earlier this year have increased, he added.

"The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation," said Mr. Powell.

Stock markets have rallied since the Fed signaled a stronger bias toward cutting rates last week. Nevertheless, Mr. Trump continued to lash out against the central bank, on Monday warning that the economy may not be strong enough to warrant higher borrowing costs.

"Think of what it could have been if the Fed had gotten it right," Mr. Trump said in a statement on Twitter. "Now they stick, like a stubborn child, when we need rate cuts.... Blew it!"

Mr. Powell has said consistently the central bank won't set policy based on political demands because this has, in past periods, led to harmful outcomes for the economy, such as runaway inflation. While he has refrained from commenting on Mr. Trump's specific critiques, Mr. Powell underscored on Tuesday that the Fed wouldn't yield to such forces.

"The Fed is insulated from short-term political pressures -- what is often referred to as our 'independence,'" he said. "Congress chose to insulate the Fed this way because it had seen the damage that often arises when policy bends to short-term political interests."

Write to Nick Timiraos at nick.timiraos@wsj.com

(END) Dow Jones Newswires

June 25, 2019 13:21 ET (17:21 GMT)