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8/23, 2:34 PM (Source: TeleTrader)
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Fed's Mester: Trade war impacting business morale

The United States Federal Reserve must weigh both downward and risks at its next meeting regarding the path of interest rates, according to Loretta Mester, the head of the central bank's subsidiary in Cleveland. She acknowledged on Friday the impact of the trade disputes with China and today's announcement from Beijing that imports worth $75 billion per year would be targeted by tariffs of 5% to 10% in bilateral exchange. The policymaker noted protectionist measures and policy uncertainty have been weighing on sentiment and investment numbers.

Mester still said the US is less exposed than Europe to the trade war and stressed she is "open minded" about how to approach borrowing costs, adding that she would "keep things the way they are" if the situation doesn't change. She also acknowledged she is "attuned" to headwinds.

The Fed must "look at the real data," the rate-setter said, when asked about the recent inversions in the Treasury yield curve. She highlighted the strong labor market and consumer spending against the weakening in manufacturing but failed to mention the services sector. This year's nonvoting member of the Federal Open Market Committee said the economy is slowing but toward trend and warned that if business spending declines further, it would spill over to the consumer.

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