World News

Trade risks easing may mean bluer sky for 2020: Fed officials

By Howard Schneider

MADISON, Wis. (Reuters) – The global trade wars may not be over, but U.S. Federal Reserve officials on Thursday said the economy may have weathered the worst of it as risks begin to ease and businesses adjust to a new trade environment.

In separate speeches and interviews, Fed policymakers, including Vice Chair Richard Clarida, were uniform in saying that developments like expected ratification of the new U.S.-Mexico-Canada trade agreement and next week’s intended signing of an initial U.S.-China trade deal have made them more confident about the economy in the year ahead.

“There are some indications that headwinds to global growth may be beginning to abate,” Clarida said in remarks at a forum in New York. The Fed’s three “well-timed” rate cuts last year have been “providing support to the economy and helping to keep the U.S. outlook on track,” he said.

His comments, echoed by four Federal Reserve regional bank presidents, come just days before Chinese officials are expected in Washington to sign a “Phase 1” trade deal.

It will not mean a full resolution of the uncertainty that many economists feel has slowed growth and pushed down business investment, St. Louis Federal Reserve President James Bullard said at an economic outlook lunch with the Wisconsin Bankers Association.

But Bullard said he feels companies are learning to adapt by shifting supply chains and strategies. The outlook now, he said, is for a “soft landing” from the recession risks that spiked last year around the trade war, with growth slowing, though not dramatically.

Recent data has been mixed. New jobs numbers due on Friday will update a strong hiring report from December. An index of manufacturing, however, last week registered its worst performance in a decade, and recent job claims data pointed to a possible rise in unemployment. Inflation remains weak, and a risk to the Fed’s outlook.

Still, the turbulence of 2019 may be avoided, Bullard said.

“Companies are not sitting there and sitting on their hands,” as tariffs take effect and trade rules are rewritten, Bullard said. “They have to think of ways to cope and it is going to mitigate the trade shock to the U.S. economy.”

The Fed cut rates three times last year largely to protect against a sharper downturn as U.S. and Chinese officials ratcheted up tariffs on each other’s goods and President Donald Trump threatened levies on other countries.

U.S. central bankers now say they are unlikely to move again absent a major shift in the economic outlook, for better or worse. Chicago Fed President Charles Evans said on Thursday that could mean no changes at all in 2020 to the Fed’s policy rate, currently in a range between 1.5% and 1.75%.

“If anything, my growth outlook has firmed a bit in the last

several weeks,” Dallas Federal Reserve Bank President Robert Kaplan told Reuters in an interview.

(Reporting by Howard Schneider; additional reporting by Ann Saphir, Jonnelle Marte and Lindsay Dunsmuir; Editing by Andrea Ricci and Dan Grebler)