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article imageBenefits of China trade truce 'limited': Fed officials

By Heather SCOTT (AFP)     Feb 19, 2020 in World

While US trade tensions have receded, including with China, Federal Reserve officials worry the danger to the economy is not over, according to minutes of the last policy meeting released Wednesday.

President Donald Trump last month signed a "phase one" agreement with Beijing which prevented some of the most damaging tariffs from taking effect, but punitive duties remain in place on about two-thirds of goods traded between the economic powers.

The truce with China as well as the new continental free trade pact with Mexico and Canada "helped reduce downside risks and appeared to buoy business sentiment," central bankers said in the minutes from the January 28-29 policy meeting.

But several officials cautioned that the impact of the deal with China "would be relatively limited."

Uncertainty over trade policy "is likely to remain elevated, with the possibility remaining of the emergence of new tensions as well as the re-escalation of existing tensions," according to the minutes.

And officials noted that the China deal "would still leave a large portion of the tariffs in place and that many firms had already been making production and supply chain adjustments."

Trump's trade confrontations have included tariffs on steel and aluminum, on top of hundreds of products from China, drawing retaliation against US products and fueling a decline in American manufacturing last year.

The frictions, marked by Trump's sharp policy gyrations and threats, have shaken the business sector, which have put investments on hold or shifted production to try to avoid excessive duties.

The US central bank cut the benchmark lending rates three times last year in an effort to buoy the economy amid Trump's multi-front trade wars.

But the policy-setting Federal Open Market Committee last month left the key interest rate steady in the target range of 1.5-1.75 percent, and indicated it was unlikely to move again unless there was a "material change" to the outlook.

Fed officials said the risk of a US recession in the next year has "fallen notably," according to the minutes.

They were "cautiously optimistic" the easing of tensions would "boost business confidence or raise export demand which would help strengthen or at least stabilize business investment."

But a few officials highlighted continued challenges for American farmers -- hit hard by Chinese retaliation -- despite subsidies provided by the government.

The outbreak of the new coronavirus in China, which has killed more than 2,000 people so far, is another source of uncertainty for the global economy that had shown signs of stabilizing, the Fed said.

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