President Trump’s decision to impose $200 billion in tariffs on $200 billion of Chinese products won’t deter the Fed from hiking next week. After that, there is a range of opinions.
President Donald Trump’s decision to impose tariffs on $200 billion of Chinese goods won’t deter the Federal Reserve from raising its benchmark short-term rate next week. What it means for December and next year is more uncertain.
Seth Carpenter, chief U. S. economist at UBS, thinks the Fed will “skip” a rate hike in December because there will be ample evidence the trade dispute is hurting the economy in the data.
Carpenter said he expects a loss of jobs from the trade fight to be evident in the November unemployment report, released on Dec. 7. There is also likely to be a rise in jobless claims, a hit in retail sales and drop in capital goods orders and shipments, he said.
If only one data point is weak, the Fed might chalk it up to noise. But with the weakness across different reports, it will push the Fed to the sidelines, Carpenter said.
“It will be enough for the Fed to ask ‘what is going on’, he said.
At the last Fed interest-rate committee meeting in late July, Fed officials saw an escalation in trade disputes as a major downside risk and listed a litany of ways that the economy might be hurt.
“Participants observed that if a large scale and prolonged dispute over trade policies developed, there would likely be adverse effects on business sentiment, investment spending, and employment,” and the possibility of a hit to the purchasing power of households, a reduction in productivity and a disruption in supply chains, according to minutes of the meeting released last month.
