Fed 'closely monitoring' trade impact on economy: Powell

Chicago (AFP) –


The US central bank is "closely monitoring" trade disputes and the implications for the economy, Federal Reserve Chairman Jerome Powell said Tuesday.

A day after another Fed official said an interest rate cut would be needed "soon" to preserve economic growth, Powell said the central bank "will act as appropriate to sustain the expansion."

President Donald Trump's multi-front trade wars including the exchange of punishing tariffs with China, and new threats to hit Mexico with tariffs, have undercut business confidence and raised prices for manufacturers.

Many forecasters cite trade disputes as the main risk to the outlook and expect the US and global economies to slow. An increasing number predict the Fed will have to act to stimulate growth as early as this year.

After four increases in the benchmark lending rate last year, Powell and his Fed colleagues have this year repeatedly said they can remain patient while they gauge how the economy progresses.

But in a speech Monday, St Louis Federal Reserve Bank President James Bullard said a rate cut "may be warranted soon" given uncertainty about trade conflicts and inflation well below the Fed's two percent target.

Powell just last month said he was "comfortable" with interest rates and the economic outlook, but at a conference on improving Fed communications, he acknowledged that the Fed is prepared to move if necessary.

On the trade front, he said in the prepared remarks, "We do not know how or when these issues will be resolved."

"We are closely monitoring the implications of these developments for the US economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective."

That two percent goal has proved elusive, however, and he said the Fed is looking for ways "to strengthen the credibility of our symmetric 2 percent inflation objective."

With inflation remaining stubbornly below the target, Powell said Fed officials "must -- and do -- take seriously the risk that inflation shortfalls that persist even in a robust economy could precipitate a difficult-to-arrest downward drift in inflation expectations."