According to Richmond Fed Reserve Bank President Thomas Barkin, conflicting signals have made it difficult to get a handle on the true health of the U.S. economy. Barkin also stated that reducing uncertainty for businesses would provide a shot in the arm to growth.
"The strength of consumption and the labor market might be saying 'hold' or even 'raise rates,' while the softness of investment, inflation and the bond market might be saying 'lower rates,'" Barkin said at an economic outlook conference in Baltimore.
The U.S. central bank recently cut interest rates for the third time in 2019. However, the bank made it clear that it does not expect to lower borrowing costs further unless the U.S. economic outlook materially deteriorates. The overnight benchmark lending rate is currently in a target range of between 1.50% and 1.75%.
Fed Chair Jerome Powell has described the cuts as insurance against ongoing risks from slowing global growth and the impact of the 16-month U.S.-China trade war.
Barkin said that he is keeping a close watch on whether those cuts have the intended effect on the U.S. economy and stated it is possible that the heightened uncertainty caused by ongoing trade tensions could cause a deterioration of the economy.
"I don't discount the idea that we could talk ourselves into a recession--particularly if the uncertainty begins to affect consumer confidence and spending," Barkin said.
A stronger-than-expected monthly jobs report assuaged concerns that recent data showing a drop in business investment and a decline in the manufacturing sector may be spreading to the broader economy, with U.S. employers adding 128,000 jobs in October, according to data from the Labor Department.
However, this does not take away the fact that the U.S.-China trade war is still simmering and global economies slowing, which could further impact the United States.
Barkin said that a reduction in uncertainty on trade and "lowering the volume" would provide a big boost to the economy.
"That would build business confidence, build consumer confidence and lead to increased investment, spending and hiring," he said. "American businesses are creative. Give them the rules -- almost any set of rules -- and they will make things happen."
Barkin does not have a vote on monetary policy this year but he participates in the Fed's policy discussions.
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