U.S. Fed leaves interest rates unchanged amid trade concerns
The U.S. Federal Reserve on Wednesday left key interest rates unchanged amid concerns about trade tensions between the United States and its trading partners.
A screen on the floor of the New York Stock Exchange shows the rate decision of the Federal Reserve, Wednesday, Aug. 1, 2018. The Federal Reserve is leaving its benchmark interest rate unchanged while signaling further gradual rate hikes in the months ahead as long as the economy stays healthy. [Photo: AP/Richard Drew]
The Fed decided to maintain the target range for the federal funds rate at 1.75 to 2 percent, the central bank said in a statement after concluding a two-day policy meeting.
The Fed noted that the U.S. labor market "has continued to strengthen" and the economic activity "has been rising at a strong rate" since policymakers met in June.
"On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent," the Fed said, showing its confidence that U.S. inflation will move toward its target of 2 percent.
The Fed's meeting came after manufacturers across the United States had expressed heightened concerns that the Trump administration's new tariffs would raise prices and disrupt the supply chains.
"Manufacturers in all Districts expressed concern about tariffs and in many Districts reported higher prices and supply disruptions that they attributed to the new trade policies," the Fed said last month in its latest survey on economic conditions, known as the Beige Book.
The Trump administration has imposed high tariffs on imported steel and aluminum products on the grounds of national security, provoking strong opposition from the domestic business community and retaliatory measures from U.S. trading partners.
"If this process leads to a world of higher tariffs on a wide range of goods and services that are traded, and those are sustained for longer period of time...that will be bad for our economy," Fed Chairman Jerome Powell told lawmakers last month.
Powell said concerns about the Trump administration's trade policy "may well" have an impact on U.S. wages and capital expenditures, though it hasn't shown up in the numbers yet.
"We've heard a rising chorus of concern which now begins to speak of actual capex (capital expenditure) plans being put on ice for the time being," he said.
But Powell believed that it was too early to say how trade policy would influence the Fed's monetary policy as it is "difficult to predict" the ultimate outcome of current discussions over trade policy as well as the size and timing of the economic effects of the fiscal stimulus.
For now, "the best way forward" for the central bank is to keep gradually raising the federal funds rate, he argued.
The Fed in June increased interest rates for the second time this year, and penciled in two more rate hikes for the year. Most market participants expected the central bank to raise rates again in September and December.