Federal Reserve Policymakers to Carefully Watch Trade Risks

Federal Reserve officials stated on Friday that they wanted to see more details about the new tariff policies before deciding whether any policy response is necessary, holding to their view that more interest hikes are needed.

Last Thursday, the Trump administration revealed plans to increase tariffs on up to $60 billion of Chinese imports. However, the measures have a 30-day consultation period before the take effect.

The new tariffs could generate difficulties for the Fed, which is tasked with fostering steady prices and full employment. With the new U.S. tariffs, it would help boost the prices for U.S. consumers, while tariffs imposed by other countries could hurt the U.S. exporters.

“I am concerned about it. It bears watching,” stated Robert Kaplan, President of Federal Reserve in Dallas. “I am going to counsel patience. From a policy point of view from the Fed, let's see how this unfolds.”

The latest threats about tariffs might be more of a negotiating technique than a sign of future policy, according to Kaplan.

Meanwhile, Raphael Bostic, President of Federal Reserve Bank in Atlanta, stated that a separate round of U.S. tariff hikes were not as extensive as initially thought.

“Don't react to the first sound of a policy but actually wait to see what policy actually gets put in place,” said Bostic.

Bostic also noted that the aluminum and steel tariffs imposed by the Trump administration are being applied to a much smaller group of countries than when they were first announced.

According to the new chairperson of Fed, Jerome Powell, the business contacts of the central bank have showed fear over trade tensions between the United States and other countries.

However, the policymakers of Fed still have not changed their perspectives about the economic outlook based on trade risks, Powell added.

Fed has slowly increasing the interest rates since 2015 and policymakers indicated that they expected to increase rates twice in 2018.

Minneapolis Fed President Neel Kashkari said that the current risks to the U.S. economy are about even. However, the Fed cannot “shrug off” risks of a trade war, he added.

“The worst case would be a trade war that triggers a crisis of confidence in the global economy,” stated Kashkari.

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