Fed's Cook sees evidence of trade policy weighing on economy

Yahoo

2 days ago

By Michael S. Derby
NEW YORK (Reuters) -Federal Reserve Governor Lisa Cook said on Tuesday that U.S. monetary policy is in a good place to respond to different economic scenarios as the Trump administration's trade policy is starting to weigh on the economy.
"I see the U.S. economy as still being in a solid position, but heightened uncertainty poses risks to both price stability and unemployment," Cook said in the text of a speech prepared for delivery to a Council on Foreign Relations event.
"There is evidence that changes to trade policy are starting to affect the economy" and "I anticipate a slowdown in the expansion of economic activity from last year's pace," Cook said. She tied trade policy to drops in manufacturing output and some types of orders for big-ticket factory goods, as well as a pullback in investment as firms navigate a very uncertain outlook.
The Fed is expected to hold its benchmark interest rate steady in the 4.25%-4.50% range at its next policy meeting on June 17-18. Many economists as well as Fed officials believe inflation and unemployment are likely to rise, clouding the central bank's policy outlook.
The Trump administration's halting and erratic tariff policy also is complicating the monetary policy outlook.
Cook said trade policy actions "appear to be increasing the likelihood of both higher inflation and labor–market cooling." But as things currently stand, "the U.S. economy is still on a firm footing."
She did not give much guidance about where she would like interest rates to head over the remainder of the year, noting "the current stance of monetary policy is well positioned to respond to a range of potential developments."
Cook said she is committed to keeping long-term inflation expectations steady. She added, "as I consider the appropriate path of monetary policy, I will carefully consider how to balance our dual mandate, and I will take into account the fact that price stability is essential for achieving long periods of strong labor market conditions."
She also noted that in the current situation firms may be more willing to raise prices given the experience they had during the COVID-19 pandemic and its immediate aftermath.