Powell Warns US Fiscal Policy Is Unsustainable, Sees “Rising Chorus” Against Tariffs
by Tyler Durden
ZeroHedge.com
Wed, 07/18/2018
While there is far less interest in Jerome Powell’s second day of his semi-annual testimony to Congress, the Fed chair did make some notable observations on the one topic which continues to fascinate markets, specifically trade disputes – and wars – saying “we don’t know ultimately where this process will lead.”
Powell said the central bank expects the economy to remain strong, but trade could complicate the Fed’s forecasts. “… it is difficult to predict the ultimate outcome of current discussions over trade policy,” he said in his prepared testimony.
When asked by Andy Barr, a Kentucky Republican, about trade and the risk of a “protracted period” of high tariffs, the Fed Chair said that “there was a lot of momentum in the economy earlier this year” but he wouldn’t want to see uncertainty from trade disputes result in offsetting that momentum, warning that if Trump’s trade policy “results in broader, higher tariffs across a broad range of traded goods or services that remain that way for a longer period of time, that will be bad for our economy and for other economies too.”
Senators representing largely agricultural and industrial states tended to express the most concern. Powell largely deflected the questions, saying the Fed doesn’t determine trade policy.
“I’m going to try to walk the line … and not comment on any particular policy. But, in principle, open trading is good,” Powell said.
Powell emphasized the uncertain nature of the Trump administration’s current trade policy.
“We don’t know how this goes. This process we’re in right now, the administration says it’s going for broadly lower tariffs. If that happens, that’s good for the economy. On the other hand, if we wind up with higher tariffs, then not so good.”
In a surprising twist, Sen. Heidi Heitkamp, cited a speech from former Fed Chair Ben Bernanke in an attempt to get Powell to be more specific.
“Would you agree with Bernanke when he said in a 2007 speech on trade that restricting trade by imposing tariffs, quotas or other barriers, is exactly the wrong thing to do for the economy?” Heitkamp asked.
Powell’s response was simple: “Assuming you’re talking about them remaining in place over a sustained period of time, absolutely.”
Powell also made his most direct warning about the risk to the economy as a result of escalating trade wars:
“we hear from our extensive network of business contacts a rising chorus of concern. As you pointed out, lots and lots of individual companies have been harmed by this. We don’t see this in the aggregate numbers yet because it’s a $20 trillion economy, and these things take time to show up, but we hear many, many stories of companies that are concerned and are now beginning to make investment decisions, or not make them, because of this.”
The Rest…HERE
