Fed Concerned Trade War Could Trigger Recession

Federal Reserve officials are worried that slowing global growth, exacerbated by the U.S.-China trade war, could sap domestic hiring and economic activity, triggering a recession, The Financial Times reported on Wednesday (Oct. 9).

Since the September Federal Reserve meeting, surveys and other economic data have hinted that weakness in manufacturing might be spreading into other parts of the U.S. economy, such as the services sector.

Officials have not dispelled market expectations that interest rates could be cut again for the third time when they meet later this month.

Data points from the meeting minutes released on Wednesday afternoon point to the likelihood of a recession in part due to the trade war and geopolitics.

“Participants generally judged that downside risks to the outlook for economic activity had increased somewhat since their July meeting, particularly those stemming from trade policy uncertainty and conditions abroad,” the minutes said.

“In addition, although readings on the labor market and the overall economy continued to be strong, a clearer picture of protracted weakness in investment spending, manufacturing production, and exports had emerged.”

At last month’s meeting, James Bullard, president of the St. Louis Fed, voted for a bolder rate cut of 50 basis points. Esther George of the Kansas City Fed and Eric Rosengren of the Boston Fed voted to “keep the target range unchanged,” the news outlet said.

Invesco portfolio manager Noelle Corum told the FT that the U.S. and China trade war, combined with recent data analysis, suggests a rate cut at the end of October and again in December.

“The Fed is threading the needle between the positive growth picture in the U.S. and the need to cut rates,” she said. “While a divided Fed makes it interesting . . . at the end of the day they can’t ignore the data.”

Americans are now paying the highest level ever on credit card interest rates — and that could have a negative impact on consumer spending and U.S. growth in general.

Consumers are facing an average of 16.9 percent interest on credit cards, the Federal Reserve said in May.