Powell, Eyeing Trade War, Says Fed Will Act to Sustain Expansion

Powell, Eyeing Trade War, Says Fed Will Act to Sustain Expansion

CHICAGO — Federal Reserve Chairman Jerome H. Powell said on Tuesday that the central bank is prepared to act to sustain the economic expansion should fallout from President Trump’s trade actions on China and Mexico threaten the United States economy.

“We do not know how or when these issues will be resolved,” Mr. Powell said of trade negotiations between the United States and other nations. “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, with a strong labor market and inflation near our symmetric 2 percent objective.”

While Mr. Powell did not explicitly say that the Fed will cut interest rates, markets are likely to interpret his comments as a signal that the central bank is prepared to do so in order to offset any economic fallout from Mr. Trump’s ongoing trade wars. Mr. Powell spoke from remarks prepared for delivery at a conference in Chicago.

Markets continue to gyrate amid concerns that Mr. Trump plans to expand his trade war to Mexico and that a deal with China may not be within reach. Financial markets have experienced increasing volatility following Mr. Trump’s announcement that he will place tariffs on Mexico in an effort to push it to address immigration issues.

“My F.O.M.C. colleagues and I must — and do — take seriously the risk that inflation shortfalls that persist even in a robust economy could precipitate a difficult-to-arrest downward drift in inflation expectations,” Mr. Powell said. He said that looking for ways to change the Fed’s policy strategy to strengthen its inflation-targeting credibility is “at the heart of the review.”

The central bank is also reviewing its approach to communication and its tool kit for combating economic downturns, and is expected to reach and report conclusions sometime in early 2020.

Source link