There can be a big threat to the US economy from the escalation of a trade war, according to warnings from the US Federal Reserve.
But the central banker is not ready to buck down to pressures and comments form US President Donald Trump against raising of interest rates and wants to continue with its policy of increasing interest rates so as the US economy does well.
According to minutes of the most recent meeting of the Feed released Wednesday, policymakers said it would “likely soon be appropriate to take another step” in raising rates if there is enough growth in the US economy as expected.
However, the threat to the US economy because of a trade war was described by the Fed in strong words that were stronger than they previously said and said that such as situation also posed a risk to their plans.
The discussions held in the most recent meeting of the Fed officials, there was discussion about the speeding up of inflation and the possibility of private industry investment slowing down on concerns of a “major escalation” of trade disputes.
The participants noted that supply chain of companies can get disrupted by such turmoil which can also discourage household from spending.
According to Fed officials, some businesses have already been forced to increase prices because of the recent tariff increases. Other industries have either reduced or delayed their investment spending due to the uncertainty about future trade policy.
There were some Federal Open Market Committee members who still believe that a cut back on spending or hiring had not been done yet by most businesses concerned about trade disputes but also noted that such businesses “might do so if trade tensions were not resolved soon.”
The plan of the central bank of higher rates as the economy strengthens will be pursued by it for now.
Starting in September, it is expected that there would be two more rate hikes this year by the Fed.
Since Trump began making adverse comments against the Fed Chairman Jerome Powell for hiking rates, this was the first Fed meeting which was held between July 31 and August 1. Trump had commented in July hat he was “not thrilled” with the actions of the Fed.
In an interview with Reuters this Monday, similar language was again used by Trump. In the interview he argued that more should be done by the central bank to help the economy grow.
“I should be given some help by the Fed,” Trump said. It might be worth mentioning that Powell was appointed by Trump himself.
There have been five rate hikes by the Fed since Trump took office. In order to keep inflation in check and not to overheat the economy, the rate hikes have been gradual and spread over a p[period of several years.
Powell told the “Marketplace” radio show in July that he was “deeply committed” to maintaining Fed independence.
“We do our work in a strictly nonpolitical way, based on detailed analysis, which we put on the record transparently, and we don’t take political considerations into account,” Powell said in the interview.
(Adapted from Money.CNN.com)