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June 13, 2018 7:02 pm
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Trade fears aren’t holding back growth forecasts

Both the minutes of the last Fed meeting, in April, and the anecdotes in the latest version of the Beige Book, which surveys business contacts at each of the 12 regional Fed banks, were loaded with worries about the Trump administration’s trade agenda and its potential to hurt economic growth. That was particularly true in the manufacturing sector, where businesses expressed concerns over the consequences of the administration’s tariffs on imported steel and aluminum, which recently went into effect.

Mr. Powell has acknowledged those concerns and criticized tariffs in general, but, under his leadership, the Fed has taken a wait-and-see approach to possible downsides from White House trade policy. Economists generally warn that tariffs slow economic activity while driving up prices in the economy, which would set off inflation. But the Fed’s statement on Wednesday appeared to shrug off those concerns — though the statement continued to caution, as it has previously, that Fed officials would continue to monitor “readings on financial and international developments” in determining future rate increases.

Lack of wage growth “a bit of a puzzle.”

The rise in consumer prices over the last year has effectively wiped out any wage increases for nonsupervisory workers, the latest Consumer Price Index data suggest. That is odd for an economy with a tight labor market, with unemployment running at a 3.8 percent. And some analysts say it’s a reason for officials to slow their pace of rate increases, since the benefits of a hot economy have not yet translated into a significant wage boost for workers.

At a comparable time of low unemployment, in 2000, “wages were growing at near 4 percent year-over-year and the Fed’s preferred measure of inflation was 2.5 percent,” both above today’s levels, Tara Sinclair, a senior fellow at the Indeed Hiring Lab, said in a research note. “The Fed continues to promise to move slowly and to carefully watch all incoming data. Too many increases too quickly could choke the economy before we really see how good it could get.”

There was no sign in Wednesday’s releases that most Fed officials share that concern, despite seeing even lower unemployment in 2018 than previously anticipated.

Mr. Powell called the slow wage growth “a bit of a puzzle” saying the Fed “certainly would have expected wages to react more to the very significant unemployment rate.”

“Everywhere we go we hear about labor shortages, but where are the wages?” he said. “It’s a bit of a puzzle.”


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