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US economy expands modestly but trade tensions weigh: Fed

WASHINGTON: The US economy expanded at a modest pace through the final six weeks of 2019 but uncertainty over US trade policy continued to hurt firms, a survey conducted by the Federal Reserve said.

“In many districts, tariffs and trade uncertainty continued to weigh on some businesses,” the Fed said in its report, compiled from anecdotal evidence derived from business contacts across the country.

The Fed cut interest rates three times last year, reversing course after three years of periodic rate hikes. Fed Chair Jerome Powell characterised the rate cuts as insurance against slowing global growth, the trade tensions and moderate inflation in order to keep the longest economic expansion on record going.

Fed policymakers have since made plain they intend to keep interest rates unchanged for the foreseeable future, citing a boost to the economy from last year’s cuts and the easing of tensions in the US-China trade war.

But Fed policymakers have warned the partial trade deal will not eliminate businesses’ concerns as US tariffs on China are set to remain in place until a “Second Phase” deal is signed. The latest Fed snapshot of the economy showed that before the deal was signed, many districts were still suffering. The Richmond Fed reported that many manufacturers in its district cited the trade tensions as a major worry.

“Several increased prices of final goods but struggled with low profit margins due to tariffs on raw materials,” the report said.

However, the prospect of a deal had also spurred some hope. The Chicago Fed district said it had “boosted farmers’ outlooks” while the Dallas Fed said “outlooks generally improved, with reduced trade uncertainty boosting optimism.” — Reuters

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