Tariffs Poses ‘Uncertainty’ Towards Strong US Economy, says Mester

The Fed President of Cleveland Loretta Mester believes that the trade war breakout fixes uncertainties to the supposedly strong economic growth outlook of the US. Mester continued to be optimistic despite the risks from tariffs on steel and aluminum by the White House as well as the punishment given towards China. On Monday, during her speech in Princeton, New Jersey, the Fed’s Mester deemed that the uncertainty may not be easy to resolve since the expected impact on the US macroeconomy mainly depend on other countries reactions, especially if they would also require tariffs or further trade barriers.

The imposed tariffs by President Donald Trump undoubtedly establish uncertainties in both the outlook for international trade and financial markets. As stocks showed volatility during the trading session yesterday, with a steep rebound from the decline on Friday.

The head of the Fed Cleveland also mentioned that for the first time, the global economic activity was seen rising and its growth forecast were revised higher, thus it can be assumed that this could bring a positive effect on the US economy exports. Moreover, the aggressive fiscal policy in terms of tax reductions and raised expenditure could possibly reach an annual growth of 0.5 percentage points until a few more years.

Previously, the Federal Open Market Committee increased its interest rate hike by a quarter point and it also presented positive picture for growth and Mester agreed with such decision, however, she is uncertain for the course of future hikes.

The current target rate of Fed is between  1.5 percent and 1.75 percent, as the FOMC is predicted to have two more rate increase this year.