While US trade tensions with China have receded, US Federal Reserve officials said that they worry the danger to the economy is not over, minutes of the last policy meeting released on Wednesday showed.
US President Donald Trump last month signed a “phase one” agreement with Beijing which prevented some of the most damaging tariffs from taking effect, but punitive duties remain in place on about two-thirds of goods traded between the world’s dominant economic powers.
The truce with China, as well as the new continental free-trade pact with Mexico and Canada, “helped reduce downside risks and appeared to buoy business sentiment,” central bankers said in the minutes from the Jan. 28 to Jan. 29 policy meeting.
However, several officials said that the impact of the deal with China “would be relatively limited.”
Uncertainty over trade policy “is likely to remain elevated, with the possibility remaining of the emergence of new tensions, as well as the re-escalation of existing tensions,” the minutes showed.
Officials said that the deal would still leave a large portion of the tariffs in place, and that many firms had already been making production and supply chain adjustments.
The average US tariff on China over the course of the trade dispute surged from 3 percent at the beginning of 2018 to more than 19 percent, economists have said.
The IMF said that trade conflicts and tariffs cut eight-10ths off world growth, and on Wednesday said the truce with China could “reduce the drag” by 0.2 percent, but added that the global economy remains fragile and beset by uncertainty.
The US central bank cut the benchmark lending rate three times last year in an effort to buoy the economy as it was shaken by Trump’s multi-front trade disputes.
The policy-setting Federal Open Market Committee last month left the key interest rate steady in the target range of 1.5 percent to 1.75 percent, and said it was unlikely to move again unless there was a “material change” to the outlook.
Fed officials said the risk of a US recession in the next year has “fallen notably,” the minutes showed.
They were “cautiously optimistic” the easing of tensions would “boost business confidence or raise export demand which would help strengthen or at least stabilize business investment.”
A few officials highlighted continued challenges for US farmers — hit hard by Chinese retaliation — despite subsidies provided by the government.
The COVID-19 outbreak in China is another source of uncertainty for the global economy that had shown signs of stabilizing, the Fed said.
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