The possibility of a full-blown trade war has forced some companies to pause investment plans, the Federal Reserve said Thursday.
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In minutes of its June meeting, the central bank’s Federal Open Market Committee (FOMC) noted that contacts across 12 districts have “expressed concern” that tariffs and other proposed trade restrictions would have adverse effects on their businesses. Some business contacts said capital spending plans were scaled back or postponed given uncertainty over global trade policy.
“Most [FOMC] participants noted that uncertainty and risks associated with trade policy had intensified and were concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending,” the Fed said.
Contacts in the steel and aluminum industries said they already expect higher prices due to import tariffs imposed by the Trump administration, according to the minutes. Those contacts did not report any plans to increase domestic capacity.
Concerns over a tariff spat between the U.S. and trade partners, including China, Canada and the European Union, could dampen expectations for a fourth rate hike in 2018.
In June, the Fed raised short-term interest rates for the second time this year and expects to increase rates twice more before the end of the 2018.
Beyond trade worries, “a number of participants” in the FOMC also said it would be premature to conclude that inflation has reached the Fed’s 2% target — a milestone that would encourage policymakers to raise interest rates.