St Louis Fed President: Rate Cut May Happen Soon

Bullard noted many potential motivations for the cut, with trade tensions, slowing global growth, persistently low inflation and the move from the US Treasury curve towards inversion.

While he noted that the direct impact of trade restrictions on the US economy may be "relatively small", "the effects through the financial markets may be larger", reported Bloomberg.

Investors seek fixed income and money market funds amid heightened risk aversion

In a speech in Chicago on Monday, Bullard added: "The FOMC faces an economy that is expected to grow more slowly going forward, with some risk the slowdown could be sharper than expected due to ongoing global trade regime uncertainty.

"In addition, both inflation and inflation expectations remain below target, and signals from the Treasury yield curve seem to suggest that the current policy rate setting is inappropriately high.

"A downward policy rate adjustment may be warranted soon to help re-centre inflation and inflation expectations at target and also to provide some insurance in case of a sharper-than-expected slowdown."

The comments mark a further dovish turn from the central bank. It put rate increases, which had previously been expected to continue, on hold in January. The Fed funds rate currently stands in a range of 2.25% to 2.5%.

US bond yields, which move inversely to prices, continue to slip, with the 2-year Treasury slipping to 1.82% on Monday, down from 2.26% as recently as 21 May. The curve continues to be inverted, with the 10-year paper, at 2.07%, yielding less than bonds maturing within the next 12 months.

Most of the Fed's policymakers continue to believe the policy rate is appropriate, with minutes from their last meeting suggesting they think recent weakness in core inflation is transitory.

US bond futures markets are now pricing in almost a 60% probability of an interest rate cut.