The United States has slapped tariffs on $250 billion worth of goods already, and Mr. Trump has threatened to extend them to another $300 billion of goods — practically all remaining imports from China — if the two nations can’t reach an agreement. This would be the first meeting between the two leaders since talks broke off in May.
“The amount of tariffs that are in place right now are not large enough to represent, itself, a major threat to the economy,” Mr. Powell said. “The concern is more around a loss of confidence or financial market reaction.”
Mr. Powell’s Fed colleagues are with him as he watches incoming data to gauge whether a rate cut is needed.
“The economy had solid momentum, but now it’s peddling against some pretty significant headwinds,” Mary Daly, president of the Federal Reserve Bank of San Francisco, said in an interview with The New York Times on Tuesday. “Let’s watch the next six weeks and see if the data reverse,” and “see how the uncertainty resolves itself as we get more information about trade negotiations, and finally, let’s see what other countries are doing to offset potential weaknesses.”
Ms. Daly would not say whether she’s projected rate cuts this year, but said she’s concerned that with more muted growth it might take longer to push inflation back toward the Fed’s 2 percent goal.
“The bottom line for me, is that I want to sustain the expansion so that we can also push inflation back up to our target,” Ms. Daly said.
Wage growth is showing signs of slowing, and inflation remains stuck at stubbornly low levels. While some of that shortfall could prove short-lived, several measures of inflation expectations are softening. That increases the risk that price growth remains permanently below the central bank’s goal, which is meant to provide a buffer to ward off economy-harming deflation.
“That undershoot looks like it might be more persistent than we had hoped, and that is not a good thing,” Mr. Powell said today. “It’s another argument, frankly, for providing more policy accommodation.”