June 26, 2018 / 7:31 PM / 20 days ago

Atlanta Fed's Bostic: Trade moves raising downside risk to U.S. economy

BIRMINGHAM, Ala. (Reuters) - Intensifying trade tensions over the last week have raised the risks to the U.S. economy, Atlanta Federal Reserve bank president Raphael Bostic said on Tuesday, adding that he may rule out a fourth rate increase for the year if the developing trade war gets worse.

FILE PHOTO: Atlanta Federal Reserve Bank President, Raphael Bostic speaks with Reuters in an interview at Stanford UniversityÕs Hoover Institution in Stanford, California, U.S., May 4, 2018. REUTERS/Ann Saphir

“The more it progresses in this more contentious way, the more it leads me to feel the risks are on the downside for the broader economy,” Bostic said in remarks at the Birmingham Civil Rights Institute. “If this progresses the way it has been the last couple of days there is some likelihood I will be moving away from four as a real possibility.”

The Fed has raised interest rates twice so far this year and its latest forecasts show policymakers expect to hike rates two more times in 2018.

But the central bank’s policymakers are evenly split on the matter and Bostic, a voter this year on interest rate policy, is squarely on the fence. He supports at least one more hike this year and has said in the past he would be open to another if the economy remains strong.

The trade spat may put that in doubt. Since the Fed’s June policy meeting the Trump administration has announced tariffs on $50 billion of Chinese goods, threatened to expand that to another $200 billion, and also to tax European car imports - steps that have led to retaliation and threats of it on the other side.

Fed officials have dealt with that risk since Donald Trump was elected, largely downplaying it as a policy concern while waiting to see actual results. But the recent actions have now led U.S. companies to take real steps, including shifting production elsewhere to skirt taxes.

Fed chair Jerome Powell acknowledged at a conference in Europe last week that the looming trade war may affect the Fed’s outlook. Bostic’s comments also indicate it may start changing how Fed officials see the evolution of policy.

“We will see how it plays out. The disruption that comes from this type of trade war is not going to be good for the cost basis for businesses and it makes me a bit concerned how robust the economy will perform moving forward,” Bostic said.

Reporting by Howard Schneider; Editing by Andrea Ricci

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