At­lanta Fed’s Bos­tic is Con­cerned About Tar­iffs

The Bond Buyer - - Market News - — Gary E. Siegel

In­ter­est rate hikes re­main ap­pro­pri­ate, but Fed­eral Re­serve Bank of At­lanta Pres­i­dent Raphael Bos­tic warned that while tar­iffs haven’t be­come a huge con­cern yet, the pos­si­bil­ity ex­ists they will.

Unem­ploy­ment re­mains low, GDP growth “has been quite ro­bust,” and the Fed is near its price-sta­bil­ity man­date. “When the econ­omy is do­ing well and stand­ing on its own, as it is now, I think mone­tary pol­icy ought to be mov­ing to­ward a neu­tral stance,” Bos­tic said at a fo­rum in Jackson, Mississippi, ac­cord­ing to pre­pared text re­leased by the Fed. “For me, this means a grad­ual in­crease in nom­i­nal in­ter­est rates over the next hand­ful of quar­ters.”

A re­cent At­lanta Fed sur­vey on whether cap­i­tal plans changed as a re­sult of tar­iffs found “only a small neg­a­tive ef­fect on U.S. busi­ness in­vest­ment so far,” he said.

“Still, there are rea­sons for con­cern,” he noted. “First, 30% of man­u­fac­tur­ing firms re­port they are re­assess­ing their cap­i­tal ex­pen­di­ture plans be­cause of tar­iff wor­ries, and man­u­fac­tur­ing is highly cap­i­tal in­ten­sive. So the in­vest­ment ef­fects of trade pol­icy fric­tions are con­cen­trated in a sec­tor that ac­counts for a sub­stan­tial share of busi­ness in­vest­ment.”

As “trade pol­icy ten­sions be­tween the United States and China” es­ca­late, he said, the “neg­a­tive ef­fects of sus­tained tar­iff wor­ries on U.S. busi­ness in­vest­ment could eas­ily grow.”

Bos­tic added, “Trade poli­cies are not im­ple­mented in a vac­uum, and per­cep­tions of how our trad­ing part­ners will re­spond to our ac­tions can ei­ther ac­cen­tu­ate or coun­ter­act the poli­cies’ in­tended ef­fects.”

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