With the increase in trade frictions between the United States and its trading partners, most Federal Reserve officials, Fed, have got increasingly troubled.
The Central bankers, however, still see the US economy building steam under Fed Chairman Jerome Powell and are planning to stay on course in gradually lifting interest rates this year as unemployment declines and inflation stays on target.
However, the minutes of a Fed meeting which was released on Thursday has shaken the officials off their seats because the results showed a more worrying scenario about a possible snag for the economy, the Trump administration’s trade policies.
As per the sources, these were the basic key points of the minutes of the Federal Reserve’s last policy meeting on June 12-13:-
- Fed policymakers discussed flattening of the yield curve.
- Most Fed policymakers said trade policy risks had intensified and were concerning.
- A number of Fed policymakers said might soon be appropriate to change part of the policy statement that refers to the policy being accommodative.
- Many policymakers said gradual hikes could take fed funds rate above neutral level sometime next year.
The minutes show policymakers discussed the possibility of a tit-for-tat trade war with China and other major US allies. On Friday, the United States and China will each impose a tariff on $34 billion of the other’s goods.
As per the minutes, “Most participants noted that uncertainty and risks associated with trade policy intensified and were concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending.”
Businesses across the country, from steel and aluminum to farming, have been telling Fed officials about plans to pull back on their investments in their businesses.
Many business contacts “expressed concern about the possible adverse effects of tariffs and other proposed trade restrictions, both domestically and abroad, on future investment activity,” according to the minutes.
Tit-for-tat tariffs between Washington and Beijing are just one part of widening trade disputes between the United States and other countries, including some of its traditional allies.
President Donald Trump imposed tariffs on steel and aluminum imports from the European Union, Canada, and Mexico in May, citing national security concerns. Those countries have threatened their own retaliatory actions.
Fed policymakers have been debating the risks and uncertainty posed by an escalating trade dispute between the United States and trading partners since the start of the year.
So far, Powell has played down the impact on the US economy.
In a press conference which was held in June, Powell said, “Right now we don’t see that in the numbers at all. The economy is very strong. I would put it down as more of a risk.
Earlier on Thursday, Bank of England Governor Mark Carney warned that higher tariffs between the United States and its trading partners could weigh on economic growth for years. He said there were already “tentative signs that this more hostile and uncertain trading environment may be dampening activity.”