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As reported by Reuters, US Federal Reserve chairman Jerome Powell is walking a careful line on foreign trade, opting to cautiously defer to the Trump administration, noting that it ultimately lands outside of the Fed’s responsibility.

Key quotes

“But in two days of congressional testimony and a broadcast interview last week the central banker also hinted the Fed may be more concerned about current trade tensions than it is letting on, as uncertainty reshapes business investment in ways that could alter the course of the economy and thus Fed policy.  “Lots and lots of individual companies have been harmed by this. We don’t see it in the aggregate numbers yet because it is a $20 trillion dollar economy and these things take time to show up,” Powell told lawmakers on Wednesday, one of a series of cautionary statements that he has made about trade once prompted by questions. “We hear many many stories of companies that are concerned and are now beginning to make investment decisions, or not make them, because of this.”

under steady questioning from House and Senate members, he laid out a jarring view of what might be on the horizon “in principle” if trade threats turn into globally higher tariffs: lower wages, less investment, lower productivity, and the sort of stagflation that would leave the Fed struggling against both rising prices and ebbing growth.  “The bottom line is a more protectionist economy, is an economy that is less competitive, less productive. This is a torch we have been carrying around the world for 75 years,” Powell said. “If that is where this goes, we don’t know where it would lead.”

The Fed’s latest Beige Book report of conversations with local business leaders highlighted the gap between the broad economic data the Fed focuses on and the individual business decisions that ultimately make up the macroeconomic landscape.  “There is a bigger impact on behavior than we are seeing” in the national economic data yet, said Mark Spindel, chief investment officer at Potomac River Capital and author of a book on Fed politics. “The line that Powell tried to walk seems at odds with the heightened uncertainty.”  Asked directly by one House member “are we or are we not in a trade war,” Powell quietly deferred: “It’s not for me to say.”

Though Fed officials have often said their forecasts won’t change based on the risk of a trade conflict, they are sensitive to how threats of bad outcomes can influence the future. In 2015, expected rate hikes were delayed after a crash in China’s stock market prompted officials to pause while assessing the possible spillover to the United States.