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US Fed concerned over trade tensions

July 6, 2018

The US Federal Reserve says US business owners are already scaling back investment plans on the back of concerns over the escalating trade conflict with China. Nonetheless, the US economy is in good shape, it says.

Jerome Powell
Image: picture-alliance/AP/A. Brandon

The minutes of the Federal Reserve's June meeting highlight rising concerns within US business over the impact of the ongoing trade conflict between the USA and China.

With Friday marking the start of the imposition of tariffs by the US government on more than 800 Chinese products, as well as counter-tariffs from the Chinese on US products, the Fed's observations suggest that fears over the escalating conflict are already having a significant effect on the US business climate.

According to the minutes, released on Thursday, some businesses in the US say they have "scaled back and postponed" plans for investment due to their concerns over US trade policy.

In an extensive survey conducted by the US central bank, several companies voiced concerns over the impact an ongoing trade conflict will have on their future investment plans.

'This conflict is already having an impact'

"Most participants noted that uncertainty and risks associated with trade policy had intensified and were concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending," the minutes said.

Apart from the trade war, everything is fine

Despite the warnings, the June minutes noted a general strengthening of the US economy and at its meeting of June 12-13, Fed officials lifted US interest rates by a quarter point, taking the rate into the 1-75 to 2 percent range following what is the second increase this year.

Signalling that two more increases are likely in 2018 to stay ahead of inflation, the rate-setting Federal Open Market Committee said the projected rises would still allow the US economy to expand and create jobs.

US President Donald Trump has been bullish about US economic performance, saying earlier this week that the economy was "doing perhaps better than ever before".

Read more: Trump's economic boom stalked by trade fears

Despite its warnings over the risks from an escalating trade conflict, the Fed was positive about US economic performance, saying indicators on GDP growth and consumer points were in line with those of a "strong economy".

However, as well as concerns over trade, they noted problems with recruitment in certain sectors, something which is constraining investment and forcing wage hikes.

aos/hg (Reuters, AFP)