Federal Reserve Chairman Jerome Powell signaled an openness to cut interest rates if necessary, pledging to keep a close watch on fallout from a deepening set of disputes between the U.S. and its largest trading partners.

Referring to “trade negotiations and other matters,” Powell said Tuesday in Chicago that “we do not know how or when these issues will be resolved.”

“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, with a strong labor market and inflation near our symmetric 2% objective,” Powell said in opening remarks at a conference at the Chicago Fed.

Investors have aggressively increased bets the Fed will cut interest rates this year after President Donald Trump widened ongoing trade tensions when he threatened last week to slap new tariffs on Mexico unless it stemmed migrant flows to the U.S.

U.S. stocks and Treasuries advanced while the dollar pared gains following the release of Powell’s remarks. The yield on 10-year U.S. Treasuries on Monday fell below 2.1%, the lowest since September 2017.

“Powell is walking a tightrope—wants to stay optimistic with still solid growth, but willing to cut if need be,’’ said Diane Swonk, chief economist at Grant Thornton in Chicago. “The threshold on a rate cut is falling.”

While investors have made clear they expect as much as half a percentage point of rate cuts from the Fed this year, Powell and his colleagues have also come under pressure from the president to ease borrowing costs to help boost the U.S. economy. Powell has been careful not to respond to Trump’s barbs, promising to set policy as the economy dictates.

Powell’s speech was dedicated mostly to the Fed’s yearlong review of its monetary policy strategies, tools and communication practices. The review was triggered largely by longer-term worries over the Fed’s struggle to keep inflation close to its 2% target.

Low inflation, along with subdued long-run growth, has helped keep nominal interest rates near historic lows even after almost 10 years of economic expansion. Low rates will make it hard for the Fed to fight a recession because rates probably cannot be cut below zero, or what the Fed terms, the “effective lower bound.”

“The proximity of interest rates to the ELB has become the preeminent monetary policy challenge of our time, tainting all manner of issues with ELB risk and imbuing many old challenges with greater significance,” Powell said.

The two-day research conference is the centerpiece of the year-long review. Fed officials and leading academics are set to debate whether they need to make changes in order to shore up inflation expectations and improve their defenses for the purposes of fighting the next economic downturn, whenever it comes.

The conference, which was announced in November, is taking place amid heightened volatility in financial markets, owing to increasing concerns about Trump’s threats to further restrict global trade. It also follows a string of government reports on consumer prices that have shown inflation drifting below the Fed’s 2% target so far this year, which many economists fear will limit policy makers’ ability to stimulate the economy if necessary.

In remarks earlier on Tuesday, Chicago Fed President Charles Evans brushed aside the idea the Fed needed to cut rates in response to market pressure. Evans votes on monetary policy this year.

“With inflation being a little bit on the light side, there’s the capacity to adjust policy if that’s necessary, but the fundamentals for the economy continue to be solid,” Evans told CNBC television. “The consumer is solid. I think we have to think through what this really means.”

Speaking Monday, St. Louis Fed President James Bullard, who also votes on the central bank’s interest-rate setting Federal Open Market Committee this year, became the first FOMC member to call for a rate cut, citing below-target inflation and the threat to economic growth posed by trade tensions.

The FOMC next meets June 18-19 in Washington.