Fed chair: Protectionism threatens growth

Federal Reserve Chairman Jerome Powell said protectionism can hurt economic growth and potentially undermine wages, just as the U.S. ratchets up trade tensions with commercial rivals as well as longstanding allies.

Testifying Tuesday before the Senate banking committee, Powell was responding to lawmaker questions about the econo- mic impact of President Donald Trump’s tariffs.

“In general, countries that have remained open to trade, that haven’t erected barriers including tariffs, have grown faster. They’ve had higher incomes, higher productivity,” he said. “Countries that have gone in a more protectionist direction have done worse.”

The Fed chairman also said concerns about trade policy “may well” have an impact on wages and capital expenditures, which are known as capex. “We don’t see it in the numbers yet, but we’ve heard a rising chorus of concern which now begins to speak of actual capex plans being put on ice for the time being,” he said.

Powell’s comments come as an increasing number of economists and policymakers warn that trade tensions threaten to undermine global growth. The International Monetary Fund on Monday said world output could drop by about 0.5 percent below its projected level by 2020 if threat- ened trade barriers become reality. The U.S. economy would be “especially vulnerable” because it would be the focus of retaliation in a tit-for-tat conflict, the Fund’s chief economist Maurice Obstfeld said.

Powell’s remarks on the economy were otherwise largely optimistic, as unemployment stands close to an 18-year low and inflation rises around the Fed’s 2 percent target. Powell said the central bank will continue to gradually raise interest rates “for now.”