In its last meeting, which saw a 25-basis point rate cut, the Federal Reserve revealed in its minutes published that trade wars pose a “headwind” with regard to economic growth. In addition, this could lead to slowing business investment, which could increase the velocity of that headwind.
According to the minutes, tariffs could “have significant negative effects on the U.S. economy” slowing business investment was “pointing to the possibility of a more substantial slowing in economic growth than the staff projected.”
“Participants generally judged that the risks associated with trade uncertainty would remain a persistent headwind for the outlook, with a number of participants reporting that their business contacts were making decisions based on their view that uncertainties around trade were not likely to dissipate anytime soon,” the minutes said.
In addition, the minutes said that Fed members “generally saw uncertainty surrounding trade policy and concerns about global growth continuing to weigh on business confidence and firms’ capital expenditure plans.”
U.S. President Donald Trump defended his latest tariff actions in front of reporters at the White House, saying “This isn’t my trade war, this is a trade war that should have taken place a long time ago,” Trump told reporters outside the White House.”
“Somebody had to do it,” said Trump. “I am the Chosen One. Somebody had to do it, so I’m taking on China. I’m taking on China on trade, and you know what? We’re winning.”
“I was put here by people,” the president added. “I was put here by people to do a great job. And that’s what I’m doing.”
The capital markets have been sent on a rollercoaster ride of volatility as of late with trade war news—at one point, a trade deal was heading in the right direction before escalating to newer heights. That volatility only increased when recession signals were emanating from the bond markets with an inverted yield curve.
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