sábado, 24 de agosto de 2019

sábado, agosto 24, 2019

Fed’s Warning: We Can’t Solve Everything

As China tensions mount and President Trump fumes, Fed chairman reminds world of limits to monetary policy

By Justin Lahart



Federal Reserve Chairman Jerome  Powell probably wishes his job was as easy as not talking about the elephant in the room.

Elephants, while large, aren’t vocal critics of Fed policy. One could reasonably talk about the natural rate of unemployment while a staffer quietly handed the elephant peanuts.

But the Fed chairman has to contend with PresidentTrump,who has been berating the central bank and calling for lower interest rates for over a year. And who clearly wants the Fed to clean up any damage to the economy from trade tensions, which escalated Friday as China said it would impose tariffs on $75 billion worth of U.S. goods.



The Fed’s shift from tightening to easing has been a balm for a stock market that might otherwise be a lot lower as a result of the trade fight. And Mr. Powell, in his remarks in Jackson Hole, Wyo., on Friday made it clear that the Fed is ready to respond with more cuts if trade tensions worsen the economic Outlook.

But Mr. Powell also said that when it comes to trade, there are limits to what the Fed can accomplish, and investors should be mindful of that. President Trump didn’t seem to take that well, wondering publicly on Twitter whether Mr. Powell is a greater threat to the U.S. than Chinese President Xi Jinping.

Part of the problem is that the Fed has no real sense of how it should proceed, Mr. Powell noted. So far this year, for example, employment and consumer spending have continued to do well even as business confidence has eroded, making it unclear how much easing the economy actually needs. For the Fed to keep cutting rates beyond next month, it might need a clearer indication that the job market and consumer spending are at risk.

Moreover, if trade uncertainty does spill over into the broader economy, the Fed’s ability to counteract the damage may be limited. First, there is the simple matter that with rates already low, the Fed only has so many rate cuts to give. But there may also be limits to what monetary policy can do to offset trade troubles.

The Fed’s safety net might be flimsier than investors believe.

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