–Effect of Tariffs Has Been Negative But Not Large
By Suzanne Cosgrove
INDIANAPOLIS (MaceNews) – Chicago Federal Reserve President Charles Evans Wednesday told a group of business leaders that U.S. economic fundamentals are largely in good shape, and that Federal Reserve policy is well situated.
The Fed already has exercised “a good amount of accommodation,” Evans said. The Federal Reserve lowered its benchmark rate three times in 2019, to a range of between 1.5 to 1.75 percent, which Evans indicated was one more cut than he would have expected.
But while that might suggest the U.S. economy is in balance, Evans said he believes it’s critical to get the inflation rate up to a sustainable 2% level or above. He said inflation would have to be well over 2% for him to argue in favor of a more restrictive, or tighter Federal Reserve policy.
An unemployment rate around the current around the current 3.5% used to be seen like a bright line around maximum employment a year or so ago, Evans said, but that no longer seems to be the case.
“More employment does not strike me as a bad thing,” Evans said, but it immediately brings to mind the question of what would ignite inflation. Traditionally, unemployment and inflation have an inverse correlation.
Asked if the global trade policy and recent U.S.-China negotiations impact his economic view, Evans said uncertainty about trade policy has been substantive, but analysis shows that while the effects of the recently imposed tariffs has been negative, they have not been large.
A larger impact for businesses is uncertainty about existing supply chains, and whether or not they will have to look at alternatives, he noted. “Reducing that uncertainty would be good,” he said, “I certainly hope it (the phase one trade agreement) works out.”