Fed’s Powell: Trade fights starting to hurt economy

Federal Reserve Chairman Jerome Powell said Tuesday the central bank plans to continue raising interest rates gradually amid a solidly growing economy and rising inflation, but he acknowledged the widening negative effects of U.S. trade skirmishes with other countries.

“We’ve heard a rising chorus of concerns that speak to (capital spending plans) being put on hold” because of uncertainty about trade, Powell told the Senate banking committee in his semiannual report to Congress.

If that kind of fallout deepens and hurts economic growth, it could lead Fed policymakers to slow the pace of rate increases, economists say. In June, Fed policymakers forecast a total of four hikes this year, up from their estimate of three in March.

Powell, asked repeatedly about the trade conflicts, took pains to say it’s too early to predict the outcome of the standoffs, adding they haven’t affected the Fed’s plans to gradually bump up its benchmark shortterm rate.

“I’m firmly committed to staying in our lane, and our lane is the economy,” Powell said

“With a strong job market, inflation close to our objective and the risk to the outlook roughly balanced, the (Fed) believes that – for now – the best way forward is to keep gradually raise the federal funds rate.”

Last week, President Donald Trump took steps that could lead to $200 billion in tariffs on Chinese imports, adding to $34 billion in duties already imposed on Chinese goods and sweeping steel and aluminum tariffs. And he has threatened another $200 billion in tariffs on China. China, the European Union and Canada have threatened counter-tariffs.

Many economists believe the escalating battles could noticeably ding economic growth and even trigger a recession by pushing up consumer prices, hurting U.S. exports and stoking business uncertainty.

Powell, a Trump appointee, tried to take a middle-ground approach. “The economic outcomes we experience often turn out to be a good deal stronger or weaker than our best forecast,” he said. “For example, it is difficult to predict the ultimate outcome of current discus- sions over trade policy as well as the size and timing of the economic effects” of Congress’ sweeping tax cuts and spending increases.

If the trade spats ultimately lead to lower tariffs on U.S. exports, “that would be a good thing for the economy,” Powell said. But if they result in higher tariffs over the longer term, “that would be bad for our economy and other economies too.”

Generally, he said, “Countries that are more open to trade have grown faster. ... Countries that have gone in more of a protectionist direction have done worse.”