As a Trade War With China Looms, the Fed’s Powell Did Not Sound Worried

Posted June 14, 2018 12:24 a.m. EDT

Jerome H. Powell, the chairman of the Federal Reserve, made comments Wednesday that are likely to go down well with supporters of President Donald Trump’s increasingly belligerent trade policies.

At the news conference after the Fed’s two-day meeting, a reporter asked Powell whether the escalating trade tensions were a risk to the U.S. economy and whether they might be having an impact on the investment decisions of companies.

Powell said Fed officials had picked up on rising concerns about trade among business executives, and he said there were reports of companies holding off on investments. But Powell seemed to go out of his way to emphasize that there was no evidence that the trade frictions were weighing on corporate behavior.

“So, right now, we don’t see that in the numbers at all,” he said. “The economy is very strong, the labor market is strong, growth is strong. We really don’t see it in the numbers. It’s just not there. But — so I — I would put it down as more of a risk.”

Of course, Powell may have gotten carried away when he gave his response. But he said more or less the same thing minutes later.

Powell is probably right that economic data shows no evidence that fears of a trade war are damping activity. But top Fed officials are often more circumspect when discussing threats to the economy, especially those that could soon become real. On Friday, the Trump administration is scheduled to announce a final list of tariffs on $50 billion of Chinese imports, and impose them shortly after. China has said it will retaliate.

How might Powell have done things differently? The Fed’s top official might, after mentioning the lack of numerical evidence, have also stressed that trade battles can send chills through the economy and create hard-to-spot risks. Such an answer would have been less debatable and, perhaps, accurate.

Perhaps he was sending a message to the White House that the Fed would not speak out about the Trump administration’s trade actions. In comments during the news conference, Powell reminded everyone that the Fed did not control trade policy. He seemed to make that point more forcefully than in the March monetary policy news conference. But the division of policy roles has not always caused Fed officials to hold their tongues. They sometimes do comment critically on policy areas that are outside the central bank’s remit, like spending and deficits.

There’s another possibility: Powell did not want worries over trade to muddy the main message of the meeting Wednesday when the Fed announced that it was raising interest rates. Its monetary policy statement, along with many of Powell’s comments, communicated that the U.S. economy was strengthening and that the central bank was ready to respond with a tap on the brakes.

True, Powell should place much more weight on hard numbers, and trade battles may end up having little impact on the economy. But the lack of classic, central banker equivocation stood out. This is what Powell also said:

“There is — there is concern that trade changes could be disruptive, and I also mentioned, we don’t see it in the numbers yet. We really don’t.”