Fed: Trade wor­ries tem­per econonic gains

The News-Times - - BUSINESS - Thurs­day, June 6, 2019

WASH­ING­TON — Most ar­eas of the coun­try saw a slight im­prove­ment in eco­nomic ac­tiv­ity in the spring, but those gains were tem­pered by con­cerns over ris­ing trade ten­sions, the Fed­eral Re­serve said Wed­nes­day.

In its lat­est re­port on eco­nomic con­di­tions na­tion­wide, the Fed said busi­nesses re­ported solid hir­ing in a num­ber of sec­tors rang­ing from re­tail to man­u­fac­tur­ing and con­struc­tion. How­ever, in many ar­eas em­ploy­ment growth was be­ing con­strained by tight la­bor mar­kets, forc­ing some com­pa­nies to boost wages to at­tract work­ers.

The Fed re­port, known as the beige book, will be used for dis­cus­sion when the cen­tral bank meets to set in­ter­est rate pol­icy on June 18-19. Fed Chair­man Jerome Pow­ell said Tues­day that the Fed was pre­pared to “act as ap­pro­pri­ate” to pro­tect the econ­omy from any fall­out from a widen­ing trade war.

Pow­ell's com­ments trig­gered a huge stock mar­ket rally as in­vestors viewed the re­marks as a sig­nal that the Fed, which raised in­ter­est rates four times last year, would con­sider cutting rates in com­ing months if needed. In­vestors are now re­vis­ing their ex­pec­ta­tions this year from steady in­ter­est rates to at least one rate cut.

Pow­ell spoke at a twoday Fed con­fer­ence in Chicago that is ex­am­in­ing ways to im­prove Fed op­er­a­tions. Lael Brainard, a Fed board mem­ber, said Wed­nes­day in an in­ter­view with Ya­hoo Fi­nance that “trade pol­icy is def­i­nitely a down­side risk to the econ­omy. … Our job is to sus­tain the ex­pan­sion and we'll need to see go­ing for­ward what that means for pol­icy.”

Trump in early May an­nounced he was rais­ing tariffs on China from 10 per­cent to 25 per­cent to pres­sure on Bei­jing to agree to ad­min­is­tra­tion demands to re­form its trade prac­tices and re­duce Amer­ica's huge trade deficit with China.

The pres­i­dent has also opened an­other front in the trade war by an­nounc­ing he would im­pose a 5 per

cent tar­iff on Mex­i­can goods begin­ning Mon­day and will raise that tar­iff as high as 25 per­cent un­less Mex­ico agrees to do more to stop the flow of il­le­gal im­mi­grants into the United States.

The beige book found busi­ness con­tacts in some dis­tricts ex­press­ing fears about the ris­ing level of tariffs even be­fore the Mex­i­can tariffs were pro­posed.

The Fed's Philadel­phia re­gional bank said that “tariffs re­mained a key con­cern for many man­u­fac­tur­ers.” The Philadel­phia Fed said that the much of the im­pact from the ini­tial 10 per­cent tariffs on Chi­nese goods had been ab­sorbed along the sup­ply chain. But man­u­fac­tur­ers wor­ried that much more of the higher 25 per­cent tariffs would have to be passed on to con­sumers.

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