Investing.com – After years of calibrating monetary policy for an economy with steady, modest growth and tame, if not negligible, inflation, economists say the U.S. central bank is facing two challenging forces that may make its job more difficult.
The Fed’s acknowledgement of both was evident in the minutes of the June meeting of its policy setting committee, known as the FOMC.
One worry is a trade war, which could dent or even derail economic growth, depending on its severity.
The Fed said that the uncertainty and risks with trade policy had “intensified”, raising concern they “could have a negative effect on business sentiment and investment spending.”
The other worry is more conventional — economic growth becomes too strong and triggers a surge in inflation.
The Fed said it was “concerned that a prolonged period in which the economy operated beyond potential could give rise to heightened inflationary pressures or to financial imbalances that could lead eventually to a significant economic downturn.”
Economists say if either threat materializes, it will alter the Fed’s policy of gradual, incremental interest rate increases.
And that, they say, increases the chance that the Fed will either do too much or too little in trying to strike the right balance.
Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Source: Investing.com
