“Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States,” Mr. Powell said, adding that there were “no recent precedents to guide any policy response to the current situation.”
His comments followed Beijing’s announcement on Friday that China would retaliate against the Trump administration’s next round of tariffs by increasing taxes on $75 billion of American imports, including agricultural products, crude oil and cars. Both countries plan to increase their levies in September and December, which could exacerbate the economic harm from a trade war that is already causing financial pain across the globe.
They also come as trade tensions, and not just those created by Mr. Trump, threaten growth abroad. Mark Carney, who heads the Bank of England, said in a Jackson Hole speech that the threat of an unruly Brexit looms large for his domestic economy.
“In recent weeks, the perceived likelihood of No Deal has risen sharply,” he said. “In my view, the appropriate policy path would be more likely to ease than not” if that should happen, though the right approach would hinge on the details.
Mr. Carney also said that slower global growth “reflects a significant spike in economic policy uncertainty and the related risk that protectionism could prove more pervasive, persistent and damaging than previously expected.” He said that could leave central bankers with less monetary policy ammunition than they already have.
In the United States, Mr. Powell noted that the period since the Fed’s last meeting, on July 31, “have been eventful.” The day after that meeting, Mr. Trump announced that the country would tax another $300 billion in Chinese products. Since then, further evidence of a global slowdown has emerged and financial markets have reacted to the “complex, turbulent picture,” Mr. Powell noted.
He said that policymakers were “carefully watching developments” as they assessed the implications for the economic outlook and monetary policy, and maintained an earlier pledge to “act as appropriate to sustain the expansion.”