Fed officials say trade tensions could threaten growth

May 23, 2019

(Reuters) – The recent ratcheting up of U.S.-China trade tensions is creating uncertainties for businesses and could threaten economic growth, four Federal Reserve policymakers said on Thursday.

The remarks suggest the outcome of the 10-month trade war between the world’s two largest economies will be an important factor as Fed policymakers weigh how long to stay “patient” on interest rates.

“I feel like the data is good, but the mood is teetering, so if we get a relaxation or a reduction in the uncertainty…then I expect the economy’s momentum to be an upside risk to growth,” San Francisco Federal Reserve President Mary Daly said at a Dallas Fed conference. “If the uncertainties persist…then I think that’s a downside to the economy, because the uncertainty has real effects, but it also has effects on confidence, and that confidence feeds back into investment.”

Richmond Fed President Thomas Barkin and Atlanta Fed President Raphael Bostic, who spoke on the same panel, also said that uncertainties around trade could hurt growth, while their resolution could boost it.

“I’m watching very carefully how these trade tensions unfold because I have a concern.. whether that could cause some deceleration in the rate of growth,” Dallas Fed President Robert Kaplan told reporters after the panel. “It’s too soon to say.”

The comments came as researchers at the New York Fed published research showing the newest round of U.S. tariffs on Chinese imports will cost the typical American household $831 annually.

The Trump administration this month increased existing tariffs on $200 billion in Chinese goods to 25% from 10%, prompting Beijing to retaliate with its own levies on U.S. imports, as talks to end a 10-month trade war between the world’s two largest economies stalled.

“Our rate setting for the moment — key words being ‘for the moment’ — is in the right area,” Kaplan said. “I think the new development over the last month has been increased trade tensions and more business uncertainty, and it’s going to take a little while to sort out how that might unfold, or how long that might last.”

The policymakers made the comments at a Dallas Fed conference on technology, where academics, educators, and policymakers gathered to discuss the effect of technological advances like artificial intelligence on inflation, labor markets and the economy.

Research presented suggested that the adoption of new technologies may be pushing down on inflation and changing the nature of work in a way that could exacerbate what are already big income inequalities.

(Reporting by Ann Saphir; Editing by Chizu Nomiyama)

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