Powell says Fed watching impact of trade tensions on economic outlook


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Chairman Jerome Powell kicked off a two-day Federal Reserve conference examining whether the central bank should alter its policy strategy and tool kit and reconsider how it talks to the market.

Federal Reserve Chairman Jerome Powell on Tuesday said the central bank was watching how trade disputes that have flared in recent days and weeks are impacting the economic outlook and assured markets that policymakers would “act as appropriate” to sustain the expansion.

“We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the U.S. 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,” Powell said in a speech.

Powell made only brief mention of current economic developments.

While the Fed had previously stated it wanted to be patient with changes on interest rates,

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 now think the Fed will be forced to cut interest rates this year. Many Wall Street economists agree.

President Donald Trump’s decision to press ahead with an aggressive trade stance toward Mexico and China have added to already existing worries about the health of the economy.

In his speech, Powell only said that the Fed did not know “how or when” these trade issues would be resolved.

The Fed Chairman stressed in his remarks that the central bank would respond if there are more surprisingly low inflation readings in coming months. Core inflation is currently running a bit below the Fed’s 2% target.

“In this setting, a similar low-side surprise, if it were to persist, would bring us uncomfortably closer” to a scenario where the economy falters and the Fed might have to push short-term interest rates back to zero to try to spur growth.

“My FOMC colleagues and I 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,” he said.

Powell spoke at the start of a two-day conference at the Chicago Fed looking at big questions — whether the central bank should adjust its policy framework, find new policy tools and alter how it communicates to markets.

Powell said the Fed must put itself in the “best position” to deal with the next recession.

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