Fed’s Quarles says economy is ‘solid’ despite uncertainty around US trade policy

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Randal Quarles, vice chairman of supervision at the Federal Reserve, at the NABE Economic Policy Conference in Washington, D.C., U.S. on Feb. 26, 2018.

Joshua Roberts

WASHINGTON — The U.S. economy is chugging along nicely even as worries over the nation’s trade policy are hurting business investment, a top Federal Reserve official said Friday.

“Fundamentally, the U.S. economy is quite solid,” said Randal Quarles, Fed vice chairman for supervision, at an event organized by Georgetown University. “There are issues about uncertainty around the global situation. The trade policy issue in particular seems to be weighing on business investment.”

Consumer spending hit its highest level in more than four years in the second quarter, the Bureau of Economic Analysis said Thursday. This offset a massive drop in business investment during the period.

Business investment contracted by 1% in the previous quarter. Initially, the BEA estimated a fall of 0.6%. The sharp drop in business investment comes as China and the U.S. wage a trade war against each other.

Since last year, the world’s largest economies have slapped tariffs on a bevy of each other’s products. These moves have sent shockwaves through financial markets and have dampened the outlook for the U.S. economy.

“That concerns me because, ultimately, business investment is where we get the future productive capacity of the economy,” Quarles said.

He noted, however: “Every time I talk to bankers across the country, our reserve bank presidents and the input they receive … it’s really quite positive with respect to actual activity and generally with respect to sentiment.”

The Fed cut interest rates by a quarter point earlier this month, citing concerns about the global economy and “muted inflation pressures.”

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