US tariffs to weigh on economy despite recent reprieve, says Fed official

The seal of the Federal Reserve Board is displayed at the entrance of the William McChesney Martin Jr. Federal Reserve Board Building in Washington, DC. Alex Wong/Getty Images/AFP (Photo by ALEX WONG / GETTY IMAGES NORTH AMERICA / Getty Images via AFP)

WASHINGTON, United States — Washington and Beijing’s agreement to temporarily reduce tit-for-tat tariffs marks an improvement for trade. However, levels remain high and are likely to weigh on economic growth, said a senior Federal Reserve official Monday.

Fed governor Adriana Kugler made these comments at a symposium in Ireland, came shortly after the United States and China said they would sharply lower tariffs on each other’s goods for 90 days while negotiations continued.

“Obviously that’s an improvement as far as trade between the two countries” is concerned, Kugler said.

But she added that levels remain “pretty high,” noting that the world’s biggest economy imports many items from China.

With the latest agreement, the United States is set to lower its tariffs on Chinese goods from 145 percent to 30 percent. Meanwhile, China will reduce its retaliation from 125 percent to 10 percent.

Tariffs will still slow down the US economy

“I still expect an increase in prices and a slowdown in the economy,” Kugler warned. Still, she anticipates this will not happen to the same extent as before.

All eyes are on whether the 90-day pause will be sustained, she said. Kugler added that things are moving in the right direction for now.

READ: A look at businesses getting a boost from the US-China trade truce

In a prepared speech, she also said Monday that “trade policies are evolving and are likely to continue shifting, even as recently as this morning.”

“Still, they appear likely to generate significant economic effects even if tariffs stay close to the currently announced levels,” she added.

And the uncertainty associated with these tariffs has already generated effects on the economy. This bogged down sentiment and caused companies to ramp up imports as they try to get ahead of fresh levies.

Since returning to the presidency in January, Donald Trump has unleashed tariffs on allies and adversaries alike. These include a sweeping 10-percent tariff on most US trading partners and steep rates on goods from China.