MNI POLICY: Powell Says Watching Trade, Fed Prepared To Act

By Jean Yung

     WASHINGTON (MNI) - The Federal Reserve is closely monitoring developments

in trade negotiations and is prepared to act "as appropriate" to sustain the

expansion, Fed Chair Jay Powell said Tuesday. 

     His comments come on the heels of U.S. President Donald Trump's latest

plans to impose tariffs on Mexican goods, which has roiled markets in the past

week, setting off fears of prolonged trade wars and calls for the Fed to lower

interest rates this year. 

     "We do not know how or when these issues will be resolved. We are closely

monitoring the implications of these developments for the U.S. economic outlook

and, as always, we will act as appropriate to sustain the expansion, with a

strong labor market and inflation near our symmetric 2% objective." 

     In remarks kicking off a high profile two-day conference to review the

Fed's policy framework, Powell also warned that policymakers must take seriously

the risk of persistently low inflation dragging down inflation expectations, in

turn raising the risk that interest rates would need to be cut to zero again. 

     "Core inflation is currently running a bit below 2% on a trailing 12-month

basis. In this setting, a similar low-side surprise, if it were to persist,

would bring us uncomfortably closer to the (effective lower bound). My FOMC

colleagues and I must -- and do -- take seriously the risk that inflation

shortfalls that persist even in a robust economy could precipitate a

difficult-to-arrest downward drift in inflation expectations." 

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

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