September 6, 2019
When it comes to setting near-term monetary policy, Federal Reserve officials are weighing two competing forces in the U.S. economy. On the one hand, the resilience of the consumer; on the other, the fallout from uncertainty around trade disputes and weaker global growth.
“The consumer is now carrying all of the weight, or much of the weight, for growth going forward,” Federal Reserve Bank of New York President John Williams told reporters after a speech in New York. He added, “One thing, though, about consumer spending that you have to be careful about is it’s not really a leading indicator.”
Bloomberg News reported that as U.S.-China trade tensions have chilled business confidence and investment, consumers have been the main drivers of growth, although the recent Beige Book report from the Fed described consumer spending as “mixed.” There’s weakness surfacing in the manufacturing sector, along with concerns brewing in financial markets that the world economy may be heading toward recession.
Speaking at around the same time as Williams, Dallas Fed chief Robert Kaplan sounded a similar theme, telling an audience in Toronto that he was watching to see if weak macroeconomic data filter into consumer attitudes. Kaplan, who isn’t currently a voter on the Federal Open Market Committee that sets the federal funds rate, said if policy makers wait for consumer spending to weaken, it might be too late.
The Fed cut interest rates by a quarter percentage point in July, and is expected to do so again when the FOMC meets on Sept. 17-18. The impact of trade policy is likely to be a factor.
In separate remarks this past week, Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans highlighted the impact of trade policy on the economy. Tariffs are “really concerning” businesses, Kashkari said during a town-hall style meeting in Minnesota. Evans noted that uncertainty tends to slow down decisions by businesses “weighing whether or not to make substantial investments.”
Vice chair of the FOMC, Williams told reporters that policy makers have seen a slowdown in many parts of the economy, outside of consumer spending. “We’ve really seen some slowing in business investment,” he said. “We’ve seen slowing in export growth. We’ve seen slowing in manufacturing.”
He added that these indicators are “maybe giving a little bit more of an indication of where things are going.”
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