Fed: Trade Uncertainty Could Erode Investments, Confidence
Fed: Trade Uncertainty Could Erode Investments, Confidence
Businesses hit pause on spending amid trade uncertainty: Fed minutes
08 July, 2018, 13:09
"The trade threat is the prime risk factor so Fed officials are going to monitor how it affects business", said Putri Pascualy, a portfolio manager at Pacific Alternative Asset Management Co in Irvine, California.
Federal Reserve officials last month discussed the impact of further hikes in interest rates, saying that by next year they could be at levels that might begin to slow economic growth.
Some members of the FOMC also stressed in the minutes that uncertainty and risks about trade policy have intensified, and warned they could have negative effects on business sentiment and investment spending. A narrowing in the gap between short-term and long-term rates has been an accurate predictor of downturns in the past.
According to the minutes, released on Thursday, some businesses in the USA say they have "scaled back and postponed" plans for investment due to their concerns over U.S. trade policy. It was the second rate hike this year and the seventh since December 2015.
The change was made because officials believed it "was no longer appropriate in light of the strong state of the economy and the current expected path for policy", the minutes said.
Unemployment was 3.8 percent in May, matching the lows since the late 1960s, and the Fed's preferred gauge of consumer prices rose 2.3 percent on annual basis in May. The projections have the funds rate rising to 3.4 percent by the end of 2020.
As such, a number of officials believed it might soon be appropriate to drop the language in the policy statement indicating that the stance of monetary policy "remains accommodative". As from midnight on Friday, the first wave of U.S. tariffs will apply to 818 Chinese goods ranging from boat motors to LEDs and radio equipment.
"Contacts in some districts indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy", the minutes said.
The Trump administration has slapped tariffs on aluminum and steel products and threatened levies on more products from major partners including Mexico, Canada, Europe and China, on whom tariffs on $34 billion of goods are scheduled to go into force early Friday. Beijing has promised to retaliate with tariffs on US goods, including farm products such as soybeans. Canada and Mexico have already slapped new taxes on USA goods, while the US and China are to levy duties on each other's products worth some $34 billion.
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