Published: Sun, July 08, 2018
Finance | By Claude Patterson

Fed: Trade Uncertainty Could Erode Investments, Confidence

Fed: Trade Uncertainty Could Erode Investments, Confidence

The Federal Reserve could raise interest rates over the next year to a level that would no longer be "accommodative" of economic growth.

Officials "judged that continuing along a path of gradual policy firming would balance the risk of moving too quickly, which could leave inflation short of a sustained return to the [policy-making] committee's symmetric goal, against the risk of moving too slowly, which could lead to a buildup of inflation pressures or material financial imbalances", the minutes said.

US central bankers are trying to keep the economy on a sustainable path as growth gets a boost from tax cuts and additional government spending, with a "few" Fed officials saying in the minutes that fiscal policy "posed an upside risk" to the outlook.

Despite the warnings, the June minutes noted a general strengthening of the USA economy and at its meeting of June 12-13, Fed officials lifted U.S. interest rates by a quarter point, taking the rate into the 1-75 to 2 percent range following what is the second increase this year.

"Many district contacts expressed concern about the possible adverse effects of tariffs and other proposed trade restrictions, both domestically and overseas, on future investment activity", according to minutes released Thursday of the Fed's June 12-13 policy meeting in Washington.

'Negative Effects' "Most participants noted that uncertainty and risks associated with trade policy had intensified and were concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending", the minutes said. Contacts in the steel and aluminum industries expected higher prices as a result of the tariffs on these products but had not planned any new investments to increase capacity.

The Federal Reserve's business contacts echoed the unease and expressed plans to scale down their investments. Officials have said they will tolerate a slight overshoot to bolster inflation expectations after years of being under the target.

The minutes overall gave the impression of a central bank impressed by the USA economy's strength and confident in its plans to continue raising rates, but also concerned with what could push the economy off its upward course.

However, they also discussed a number of global factors potentially weighing on the economy or its outlook, including "political and economic developments in Europe and some (emerging market economies)". The bank made three rate hikes past year and one in December 2016.

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