MNI ANALYSIS: Fed's Mester: Tariffs Pose 'Risk' to Outlook

--Impact Depends on How Other Countries React

--No Immediate Effect on Outlook

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve Bank of Cleveland President Loretta

Mester echoed Chair Jay Powell on Monday when she commented that new and planned

trade tariffs out of the Trump administration pose a "risk" to -- but has not

altered -- her economic outlook. 

     The tariffs on steel and aluminum imports and threats of planned measures

on certain goods imported from China, as well as the ongoing renegotiations of

the North American Free Trade Agreement "add uncertainty to the trade picture"

which may not be quickly resolved, she said. 

     "While I see them as a risk to the forecast, at this point they have not

led me to change my outlook for the overall economy," she told an audience at

Princeton University. 

     Analysts say the steel and aluminum tariffs would have a miniscule impact

on GDP growth but may stoke inflationary pressures at a time when the economy is

hot and firms are already seeing rising costs. 

     But a key area of uncertainty that Mester flagged Monday is how other

countries will react to U.S. tariffs, including whether they impose their own

tariffs in response. Retaliation via tariffs on U.S. exports could have the

opposite effect on inflation and negatively affect domestic business sentiment. 

     Given that Fed policymakers including Mester, a voter on rates this year,

are currently waiting for inflation to move back to goal before possibly

speeding up the pace of planned hikes, her remarks signal officials will

continue to monitor development carefully. 

     "If the upside risks to growth come to pass, we may need to steepen the

path a bit; if inflation surprises on the downside, we may need to go a bit

slower," Mester said Monday. 

     Powell last week said the tariffs issue came up at the March Federal Open

Market Committee meeting and said "there's no thought that changes in trade

policy should have any effect on the current outlook."

     However, it's become a "concern going forward" for business leaders, he

said. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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