The Federal Reserve’s conduct of monetary policy is complicated by uncertainty over trade policy, in particular recent news about U.S.-Chinese trade relations, Fed Chairman Jerome Powell said today at the Kansas City Fed’s annual summit in Jackson Hole, Wyo. “Fitting trade policy uncertainty into this framework is a new challenge,” he remarked, noting that trade policy is the province of Congress and the presidency, not the Fed. “There are, however, no recent precedents to guide any policy response to the current situation.”
Trade uncertainty was one of three key factors weighing on what is otherwise a “favorable outlook” for the U.S. economy, Powell added. The other factors are slowing global growth—with the global outlook “deteriorating since the middle of last year,” fueled in part by trade uncertainty—and inflation that fell below the Fed’s 2% objective during the first part of 2019.
“Meanwhile, the U.S. economy has continued to perform well overall, driven by consumer spending,” Powell said. “Job creation has slowed from last year’s pace but is still above overall labor force growth. Inflation seems to be moving up closer to 2%. Based on our assessment of the implications of these developments, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2% objective.”