Tariff risks to the economy have intensified, Federal Reserve says

Federal Reserve expects to keep raising interest rates and is watching trade tensions minutes show

Federal Reserve Board Chairman Jerome Powell leads a meeting in June

"Many district contacts expressed concern about the possible adverse effects of tariffs and other proposed trade restrictions, both domestically and overseas, on future investment activity", according to minutes released Thursday of the Fed's June 12-13 policy meeting in Washington.

Monetary policy remains on course, despite worries about a global trade war, triggered by escalating retaliatory tariffs.

The Federal Reserve has once again flagged the damage that a trade war between the USA and key partners could do to the economy.

"Most [FOMC] participants noted that uncertainty and risks associated with trade policy had intensified and were concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending", the Fed said.

"Contacts in some districts indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy", the minutes said.

In June, the Fed raised short-term interest rates for the second time this year and expects to increase rates twice more before the end of the 2018.

Fed policymakers also had a wide-ranging discussion on whether the recently slim spread between short- and long-term interest rates might be a sign of an impending recession.

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Trump has staked out a tougher approach on trade in an effort to achieve his goal of dramatically shrinking America's huge trade deficits, which he has blamed for the loss of millions of US factory jobs.

That indicator might have more reliable information than the yield curve, which might be distorted by temporary factors, the staff said, according to the minutes.

"A number of participants thought it would be important to continue to monitor the slope of the yield curve", according to the minutes.

The document released on Thursday did not indicate whether policymakers took either the yield curve or the information from the staff presentation as pointing toward an impending recession.

Signaling their conviction for smooth sailing, participants removed the "forward guidance" clause, which was first implemented in the early 2000s as a means for central bankers to communicate to the public their monetary policy expectations.

Maintaining forward guidance, the minutes state, "was no longer appropriate in light of the strong state of the economy and the current expected path for policy".

Political and economic turmoil in some parts of Europe and emerging-market economies were also cited as a downside risk to growth and inflation by "many" Fed officials.

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