ZCZC
BCN-19
US-ECONOMY-BANK-RATE
Trade tensions, Brexit pose risk to US economy: Fed
WASHINGTON, Feb 23, 2019 (BSS/AFP) – Continued trade tensions and Brexit are
key risks facing the US economy and could undermine financial stability, the
Federal Reserve cautioned Friday.
“Potential downside risks to international financial stability include a
downturn in global growth, political and policy uncertainty, an
intensification of trade tensions and broadening stress in emerging market
economies,” the Fed said in its semi-annual report on monetary policy.
Those concerns caused the Fed to shift to wait-and-see mode after raising
interest rates four times in 2018, after “volatility in financial markets and
increased concerns about global growth made the appropriate extent and timing
of future rate increases more uncertain than earlier.”
And the prospects that Britain will leave the European Union without an
agreement could create “a wide range of economic and financial activities
could be disrupted,” despite preparations.
“Without such a withdrawal agreement, there will be no transition period
for important trade and financial interactions between UK and EU residents.”
The report was prepared for Congress to accompany the twice-yearly
testimony by Fed Chairman Jerome Powell, who will appear Tuesday and
Wednesday to answer questions about monetary policy.
Powell and other central bankers late last year pivoted sharply away from
expectations that more increases in the lynchpin for borrowing costs would be
needed this year.
Instead, they clearly and repeatedly signaled they will pause for now.
The report cited tariffs as a key risk to rising inflation but falling oil
prices and a strong dollar could dampen inflation.
In fact the trade tensions with China — which are subject to high-stakes
negotiations this week — are mentioned more than 20 times in the nearly 60-
page report.
The report repeated that the Fed continued to expect the US economy to put
in a solid performance this year, with inflation approaching the two percent
target.
BSS/AFP/SR/1810 HRS