Trade uncertainties are on top of the minds of the investors and businesses, but they’re not only the risk facing in the US economy right now, stated Mary Daly, the President and chief executive of the Federal Reserve Bank of San Francisco.
Daly also added that the global economy is decelerating and now that there is a possibility of U.K. eventually dropping out of the European Union, has affected the economic activity.
“I don’t want us to get too focused on only trade when there are these other looming uncertainties that also need resolution,” she said.
Yet, Daly, who is a non-voting member on a policy-setting Federal Open Market Committee — recapitulated that the U.S. economy is “in a good place” given that it is almost reaching its target of full employment, inflation is slowly inching up toward the Fed’s 2% target, and the federal funds rate is near “neutral.”
It implies that the Fed can be patient before making its next monetary policy move, she said. “I think patience is the way we should be right now,” she added.
She commented right after James Bullard, the President and chief executive of Federal Reserve Bank of St. Louis said that an interest rate cut may be warranted soon. He anticipated rising risk from trade and weak US inflation as the reasons that could support such a move.
Bullard is a voting member of the FOMC
Investors are also anticipating the Federal Reserve to cut interest rates even though they have claimed no change in rates for sometime.
Daly said, for now, the biggest risk upon the U.S economy is the uncertainty affecting business sentiment. She warned on Monday, that the American economy, the largest economy in the world, might face danger if business sentiment and economic data go out of sync.
She cited two instances when sentiment and data moved in opposite directions. In December last year, she said, economic data releases were “good” but the mood among investors and businesses was “bad.” And then the reverse happened in January, she added.
“What really keeps me up at night is the data and the mood getting out of sync and, eventually, the possibility that the mood becomes the self-fulfilling prophecy of the data,” stated Daly on Monday.
She notified that if people are really uncertain they fear recession or fear a downturn and once this gets incorporated into their head they spend or invest less. As a consequence of this, less spending and investment can slow down the economy which we wouldn’t have had in the first place, said Daly.
To be sure, Daly said she hasn’t seen that phenomenon happening in the U.S. But some businesses have started to hold back riskier investments and projects due to uncertainties.