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Federal Reserve says US-china trade war poses “downside risks” to economy

WASHINGTON, Prospects of a trade war between the United States and China poses “downside risks” to the economy, the Federal Reserve indicated Wednesday.

In notes from the March 20-21 monetary policy meeting, Fed officials raised the benchmark interest rate for the first time this year, and cited “other issues and uncertainties associated with trade policies” as risks to the country’s economic outlook.

However, they expressed confidence inflation would return to their two percent target as tax cuts and increased government spending provide a boost to the economy.

Tensions between the US and China have escalated in recent weeks, with both announcing additional tariffs on key products, ranging from aluminum to soybeans.

“Participants did not see the steel and aluminum tariffs, by themselves, as likely to have a significant effect on the national economic outlook, but a strong majority of participants viewed the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the US economy,” the Fed minutes said.

The Federal Open Market Committee voted to raise its benchmark interest rate by 25 basis points to a range of 1.50 percent to 1.75 percent.

The move by Fed officials signaled leanings toward a slightly faster pace of policy tightening and suggested their growth outlook and confidence in hitting inflation target has strengthen, according to minutes of the gathering released Wednesday.

They indicated, “the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected,” the committee said. The Fed maintained its forecast for two more rate hikes this year.

Meanwhile at his first press conference as Fed chairman, Jerome Powell said the committee expected this fiscal stimulus to affect the economy only starting in the second half of the year.

Source: Kuwait News Agency