MNI INTERVIEW: Fed Economist: Little Chance Of Investment Jump

By Jean Yung

     WASHINGTON (MNI) - There is little prospect of a jump in U.S. business

investment this year, as American manufacturers remain wary of China's

commitment to make good on promises under the partial trade pact signed last

month as it battles the coronavirus, Federal Reserve Bank of Chicago adviser

Bill Strauss told MNI.

     Any boost to growth from the removal of tariffs on Chinese goods will

likely to be offset by the negative impact from travel and trade restrictions

prompted by coronavirus, Strauss said, citing recent interviews with

manufacturers.

     "I don't see a great upside on the tariffs story, and at this point with

the coronavirus, China trade will be a slight negative," Strauss said.

     "If the Chinese come close to adhering to the Phase One deal, I think that

would be very positive and give greater confidence to businesses. But they now

have a legitimate justification with the coronavirus to not fulfil their

obligations and not be in violation of the agreement," he added.

     But because there remains a lot of uncertainty regarding the persistence of

the virus, "it's too much of an unknown still to move the policy outlook," he

said. "I'm not altering my general view of trend-like 2% growth, or slightly

under, for the economy this year."

     --FUNDAMENTALS SOLID

     Vehicle sales and labor market indicators at the start of the year point to

the consumer being on a "fairly solid footing," Strauss said.

     January saw a record market share for sales of light trucks, at around 75%,

benefitting from low energy prices. Oil prices are expected to stay weak amid

lessened demand out of China.

     Fears that the virus could deal a sharp blow to global growth have

flattened the yield curve, but "I'm not too worked up about brief inversions,"

Strauss said.

     He said he's hopeful the Fed's relatively accommodative stance will "bear

some fruit" this year in the form of inflation moving closer to 2%.

     Even if inflation moved more quickly and rose slightly above 2%, Strauss

said, the Fed is unlikely to react. "Two percent is not a ceiling."

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

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