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article imageUS Fed warns trade dispute escalation poses 'consequential' economic risk

By AFP     Aug 22, 2018 in World

An escalation of ongoing US trade disputes poses a "consequential downside risk" to the economy, which will make the job of the central bank more challenging, the US Federal Reserve warned Wednesday.

The United States has imposed tariffs on hundreds of products, mostly from China, which Fed members say already have raised prices and could pressure inflation further, according to the minutes of the July 30-August 1 meeting, when the Fed left lending rates unchanged.

The warning came just as US and Chinese officials begin talks in Washington to try to defuse the spiraling disagreement over trade policies, with a new round of punitive tariffs on $16 billion in goods from each country just hours away

But with the US economy continuing to grow, and the job market strengthening further many Fed members said they likely will need to raise the benchmark interest rate again "soon."

The Fed is widely expected to hike the federal funds interest rate in September and again in December, following increases in March and June.

- A 'transitory' boost in Q2? -

The US has imposed tariffs on hundreds of products  mostly from China  which Fed members say already...
The US has imposed tariffs on hundreds of products, mostly from China, which Fed members say already have raised prices and could pressure inflation further

"Many participants suggested that if incoming data continued to support their current economic outlook, it would likely soon be appropriate to take another step," the minutes said.

But they continue to believe that "further gradual increases" will allow the US economy to expand and provide "strong labor market conditions" while keeping inflation around the Fed's two percent target.

However, the minutes again showed Fed officials' concern about the impact of trade disputes with China and other trading partners on US businesses, causing higher prices for necessary inputs and uncertainty that leads to delayed investments.

It is not the first time central bankers have expressed concern over the consequences of the aggressive trade policies pursued by President Donald Trump but it was expressed in stronger language than previously.

All participants in the Fed meeting "pointed to ongoing trade disagreements and proposed trade measures as an important source of uncertainty and risks."

In addition, most said "an escalation in international trade disputes was a potentially consequential downside risk for real activity," according to the minutes.

A large-scale and prolonged dispute likely would adversely impact business sentiment, investment spending and employment, the officials warned.

"Moreover, wide-ranging tariff increases would also reduce the purchasing power of US households."

The agriculture sector has been hurt by falling crop prices, partly due to the trade battles, the Fed said.

And while the Fed was upbeat about the economic outlook it noted that the strong growth in the April-June quarter -- which hit 4.1 percent -- "may have been boosted by transitory factors" including the jump in exports.

US exports rose in the second quarter as buyers rushed to grab products like soybeans before retaliatory tariffs hit in July.

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