The Fed is more worried that Trump's tariffs on Chinese goods could wreck the US economy

Alex Wong/GettyChairman of the Federal Reserve nominee Jerome Powell testifies during his confirmation hearing before the Senate Banking, Housing and Urban Affairs Committee November 28, 2017 on Capitol Hill in Washington, DC.
  • The Federal Reserve says the uncertainty and risks related to a trade war between the US and its partners have intensified.
  • The trade disputes could eventually weaken business investment, the Fed said in minutes of its June meeting released on Thursday.

The Federal Reserve has once again flagged the damage that a trade war between the US and key partners could do to the economy.

In minutes of their June meeting released on Thursday, central bankers said “uncertainty and risks associated with trade policy had intensified, adding they “were concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending.”

Their comments were published on the eve of President Donald Trump’s tariffs on Chinese goods taking effect. As from midnight on Friday, the first wave of US tariffs will apply to 818 Chinese goods ranging from boat motors to LEDs and radio equipment.

Several contacts in the Fed’s districts also sounded the alarm on tariffs. People in the steel and aluminium industries said they expected prices to increase. Contacts in the agricultural sector reported some improvement in business conditions, but were worried that tariffs would make their exports less attractive to foreign buyers.

“Contacts in some districts indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy,” the minutes said.

Minutes of the Fed’s March meeting also showed that officials saw trade rifts between the US and China as risks to the economy’s growth.

Last month, the Fed raised its key interest rate by 25 basis points to between 1.75% and 2%, and expects to increase borrowing costs two more times this year.

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