US trade uncertainties sparked business 'shock': Federal Reserve's Powell

[WASHINGTON] President Donald Trump's aggressive trade actions sparked a "shock" to business confidence which could impact the economy, and contributes to the case for cutting rates, Federal Reserve Chairman Jerome Powell said on Wednesday.

While sentiment has recovered some in recent weeks, businesses around the country have been telling the Fed about their concerns about material prices and access to supplies, Mr Powell told a Senate committee.

Business confidence surveys turned "quite negative" in May - when Mr Trump's trade negotiations with China collapsed amid bitter accusations - and was "a bit of a confidence shock," he said.

That concern among manufacturers, in particular the threat to their global supply chains, prompted the Fed to "indicate at our last meeting we were looking at changing rates."

The Fed open the door last month to cutting the benchmark lending rate, and economists and investors are convinced it will happen at the end of July.

Mr Powell confirmed that the Fed is considering adjusting its stance to help the economy continue to grow.

"The bottom line is the economy is in a very good place and we want to use our tools to keep it there. It's very important this expansion continue as long as possible," Mr Powell said.

Critically, keeping growth going helps workers left at the margins of the economy, since they are now finding work as companies scramble to fill open positions, he said, especially since low unemployment does not fuel inflation as it once did.

But the United States cannot rely on rare decade-long expansions to address the problem of inequality and opportunity.

"We need a better strategy than that," he said.

"At the end of the day, it comes down to an educational system and a society that produces people that have the skills and aptitudes to benefit from technology... Without it, it will be very hard to achieve."

Mr Powell also said immigrants add to the US workforce and help boost economic growth.

Asked about the impact of illegal immigration, the Fed chief said, "people who come in legally or illegally, they add to our workforce and they contribute to GDP," while research shows little to no impact on wages.

And with companies struggling to find workers amid historically low unemployment rates, he noted that "total immigration has contributed more than half of the growth to our workforce in the last few years so it's important."

AFP