Federal Reserve Chairman Jerome Powell said the “phase one” trade deal between the U.S. and China could remove some economic uncertainty but said there is still “plenty of risk left.”
Citing muted inflation, trade tensions, and slowing global growth, the Fed cut interest rates for the third consecutive time on Wednesday. The Fed is now targeting interest rates in a range of between 1.5% and 1.75%.
But Powell acknowledged that there is a possible upside to trade developments in the future.
“We have that phase one potential agreement with China which, if signed and put into effect, could have the effect of reducing trade tensions and reducing uncertainty,” Powell said in a press conference Oct. 30. “And that would bode well, we think, for business confidence and perhaps activity over time.”
On October 11, the U.S. and China agreed on a partial trade deal that negotiators said would be signed in November. As part of the “phase one” deal, China would increase purchases of U.S. agricultural products in exchange for the U.S. cancelling some planned tariffs. The deal is also reported to include some Chinese concessions on the protection of U.S. intellectual property.
The deal has not been signed yet, and a cancellation of the event where President Donald Trump and Chinese President Xi Jinping were expected to meet raises questions about when it will be signed.
Brexit
Still, Powell appeared to embrace the possibility of reduced global uncertainty. Referencing Brexit, Powell said developments appear to point to lower chances of a no-deal or Brexit. Powell said in January that a no-deal Brexit would disrupt the European economy at a magnitude that “would reach us” in the United States.
British Prime Minister Boris Johnson this week secured a Dec. 12 election that could help him earn the seats he needs to win a majority in Parliament and pass his Brexit plan.
Powell said the developments show that the odds of a no-deal Brexit appear to have “materially declined,” which he compared to the U.S.-China trade developments.
“I think on both situations, there is plenty of risks left,” Powell said. “But I’d have to say the risks seem to have subsided.”
The Fed’s next policy-setting meeting will take place Dec. 10 and 11.
Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.
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