Federal Reserve officials fretted about the possibility of a trade war cutting off economic growth at their latest monetary policy meeting, notes from the discussion released Wednesday revealed, but nevertheless viewed the economy as strong and gaining momentum.
The Fed’s endorsement of the health of the economy suggests that it is likely to proceed with further rate interest rate hikes as soon as September, setting up the possibility of further confrontation with President Trump, who’s challenged the Fed’s rate hikes.
All members of the central bank viewed Trump’s threats of tariffs as “an important source of uncertainty and risks,” according to the notes.
They also noted that businesses are ready to scale back investments soon if the trade war threat is not soon defused. And they also worried that the fallout of a trade war, with its unpredictable effects, might make it harder to know how to conduct monetary policy.
[Related: Businesses grow impatient with Trump’s trade war]
Nevertheless, several officials saw the bigger risk as the possibility that they are underestimating the “stronger underlying momentum in the economy.” Faster-than-expected growth could push up inflation and force the Fed to tighten money even faster than officials are prepared for.
Accordingly, most agreed at the meeting that it would be necessary to raise the Fed’s interest rate target again “soon.” They next meet toward the end of September.
Wednesday’s news comes from the newly published minutes of the Fed’s monetary policy meeting in Washington that ended Aug 1.
Since that meeting, at which the Fed signaled that it was likely to move ahead with further interest rate hikes, President Trump has stepped up criticism of Chairman Jerome Powell and repeatedly weighed in against the central bank raising interest rates. Trump’s protocol-defying bashing of the Fed has intensified in recent days.
The Fed has raised rates twice under Powell, who took office in January, and seven times since lowering them to zero during the financial crisis. Powell is in the midst of an effort to dial back the crisis-era stimulus measures undertaken by the Fed.
The administration has also moved forward with a multi-front trade war that has spooked some business leaders.
Nevertheless, there’s been little data over the course of the summer to suggest the economic recovery is slowing. The jobs report that came out just after the Fed meeting showed unemployment falling to 3.9 percent amid strong job growth. And, this week, stock markets reached a new all-time high.
