Analysts see trade war influencing FED policies
The Federal Reserve will hold a policy meeting Wednesday and is set to raise interest rates for a third time this year. But with President Donald Trump’s trade fights posing a risk to the U.S. economy, the Fed might soon be ready to slow its hikes.
Many analysts expect the economy to weaken next year, in part from the effects of the conflicts Trump has pursued with China, Canada, Europe and other trading partners.
The tariffs and countertariffs that have been imposed on imports and exports are raising prices for key goods and supplies and could slow growth.
An economic slowdown would likely lead the Fed to throttle back on its rate increases to avoid stifling growth. In that scenario, it might raise rates only twice in 2019 and then retreat to the sidelines to see how the economy fares.
Compounding the effects of the tariffs and retaliatory tariffs resulting from Trump’s trade war, other factors could slow growth next year. The benefits of tax cuts that took effect this year, along with increased government spending, for example, are widely expected to fade.
Still, some analysts hold to a more optimistic scenario: That momentum already built up from the government’s economic stimulus will keep strengthening the job market and lowering unemployment — at 3.9 percent, already near a 50-year low. A tight employment market, in this scenario, would accelerate wages and inflation and prod the Fed to keep tightening credit to ensure the economy doesn’t overheat.