Fed Chairman Hints That Rate Cuts May Be Needed Due to Trade Disputes

June 4, 2019 by Dan McCue
Federal Reserve Chairman Jerome Powell testifies on monetary policy, before the House Financial Services Committee on Capitol Hill in Washington, D.C., U.S., Feb. 27, 2018. (Olivier Douliery/Abaca Press/TNS)

Federal Reserve Chairman Jerome Powell hinted on Tuesday that the central bank is prepared to cut interest rates later this year if it decides President Donald Trump’s many trade conflicts are harming the U.S. economy.

“We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion,” Powell said during a Fed conference in Chicago.

Although he did not give an explicit indication of what the Fed will do if Trump’s trade policies begin to significantly degrade the economy, interpretations of his remark caused the Dow Jones Industrial Average to surge in afternoon trading.

The current U.S. economic expansion is expected to become the longest uninterrupted growth period on record next month, surpassing the 10-year expansion of the 1990s.

Despite this, many economists and investors fear that the White House inspired trade wars and the retaliatory tariffs that come with them are dramatically increasing the risk of a recession coming sooner rather than later.

Appearing on CNBC shortly after Powell spoke, Fed Vice Chairman Richard Clarida declined to speculate on what the Fed might do in the face of a slowdown, saying only “We will put in policies that need to be in place.”

President Trump has imposed far-reaching tariffs on imports on China, which has retaliated with tariffs of its own on U.S. exports.

He has also threatened to impose an escalating series of tariffs against Mexico unless it stops migrants from Central America into the United States.

Clarida told CNBC that the U.S. economy is in a “good place,” at the moment, and that the trade dispute with China have had only a small impact so far.

The Fed conference in Chicago is focused on how the central bank can make its rate policy more effective at a time when inflation has remained chronically below the Fed’s target level. The Fed is also holding listening sessions around the country to gather public comments to inform future policy changes.

“With the economy growing, unemployment low and inflation low and stable, this is the right time to engage the public broadly on these topics,” Powell said.

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