Federal Reserve Governor Lael Brainard warned on Thursday that the economy could be slowing despite strong job growth.
In remarks prepared for delivery at Princeton University, Brainard cited, as risks to the economy, surveys of consumers and businesses showing declined optimism in the U.S. economy, a weakening global economy, and the potential that President Trump’s trade wars or a government shutdown could weigh down future economic growth.
The lack of agreement on a government budget beyond the temporary funding deal agreed upon by Congress and Trump last month could restore aggressive cuts put in place, and then suspended, as part of a compromise between then-President Barack Obama and congressional Republicans.
That “would amount to a significant headwind,” for the U.S. economy, Brainard said.
Brainard also pointed to lowered optimism among U.S. businesses and consumers as a data point to continue to monitor for signs of a slowdown.
“This softening [in optimism] could be a harbinger of some slowing in the underlying momentum of domestic demand,” said Brainard. A decline in domestic demand for goods and services could further weaken economic conditions as China, Germany, and other major global economies have slowed, she said.
Despite recent talk from Trump of a new trade deal with China, “trade dispute escalation remains a risk,” said Brainard. “While recent reports suggest some progress, the prospect of additional tariffs in the trade conflict with China or on automobiles have been cited frequently as a risk in earnings reports and reports from business contacts.”
Brainard added that the Fed should stop shrinking its balance sheet. The Fed increased its holdings of government bonds in the wake of the financial crisis to stimulate the economy, and in recent months has been slowly reversing that process.
“The most likely path for the economy appears to have softened against a backdrop of greater downside risks. Our goal now is to safeguard the progress we have made on on full employment and target inflation,” Brainard said.
