Interest rate hikes remain appropriate, but Federal Reserve Bank of Atlanta President Raphael Bostic warned that while tariffs haven’t become a huge concern yet, the possibility exists they will.
Unemployment remains low, GDP growth “has been quite robust,” and the Fed is near its price-stability mandate. “When the economy is doing well and standing on its own, as it is now, I think monetary policy ought to be moving toward a neutral stance,” Bostic said at a forum in Jackson, Miss., according to prepared text released by the Fed. “For me, this means a gradual increase in nominal interest rates over the next handful of quarters.”
Speaking about trade, concern about the future of trade policy could impact business decisions. “In practical terms this means, for example, that the uncertainty touched off by the imposition of trade restrictions can easily affect firms' decision-making, independent of the direct effects of the restrictions themselves.”
A recent Atlanta Fed survey on whether capital investment plans changed as a result of tariffs found “only a small negative effect on U.S. business investment so far,” he said, as the uncertain outlook led some firms to delay spending plans.
“Still, there are reasons for concern,” he noted. “First, 30% of manufacturing firms report they are reassessing their capital expenditure plans because of tariff worries, and manufacturing is highly capital intensive. So the investment effects of trade policy frictions are concentrated in a sector that accounts for a substantial share of business investment.”
Also, 12% of respondents reported reviewing “previously planned capital expenditures.”
As “trade policy tensions between the United States and China” escalate, he said, the “negative effects of sustained tariff worries on U.S. business investment could easily grow.”
Bostic added, “Trade policies are not implemented in a vacuum, and perceptions of how our trading partners will respond to our actions can either accentuate or counteract the policies’ intended effects.”
