Fed’s Cook dinner warns tariffs might decrease productiveness, feed inflation

By Howard Schneider

PALO ALTO (Reuters) -President Donald Trump’s unfolding commerce coverage might curb U.S. productiveness and probably require greater rates of interest to comprise inflation in a much less environment friendly financial system, Federal Reserve governor Lisa Cook dinner stated on Friday.

“I count on to see a drag on productiveness within the close to time period stemming from the latest modifications to commerce coverage and the associated uncertainty,” Cook dinner stated in remarks ready for a supply at an economics convention at Stanford College’s Hoover Establishment.

Uncertainty round Trump’s plans might discourage funding, Cook dinner stated, whereas the rising value of imported intermediate items and tools might additionally delay tasks that might in any other case improve productiveness.

“Uncertainty round commerce coverage is prone to cut back enterprise funding going ahead. At the moment, corporations have no idea the last word degree and incidence of tariffs or their length,” Cook dinner stated. “Increased prices of imported supplies and parts might additionally trigger corporations to delay or reduce

their funding plans.”

Much less capital funding “can result in slower technological innovation and adoption and decreased general effectivity,” she stated, whereas greater commerce obstacles might “prop up much less environment friendly corporations” and make the financial system much less aggressive.

Provide disruptions might create an extra inefficiency, Cook dinner stated.

Synthetic intelligence might elevate productiveness, she stated, and it stays removed from clear what the web end result can be over time.

She stated tariffs on their very own might decrease potential output. Simply as latest positive aspects in productiveness have helped enhance development and produce down U.S. inflation, “a discount in potential gross home product means much less slack within the financial system which, in tern, means larger inflationary strain” and probably greater rates of interest, she stated.

(Reporting by Howard Schneider; Enhancing by David Gregorio)