Federal Reserve President Stephen Milan said on Wednesday that the recent impasse in U.S.-China trade talks poses new risks to the economic outlook, further increasing the need for interest rate cuts.
Speaking at the CNBC America Investment Forum in Washington, D.C., the central bank policymaker pointed to the threat posed by China’s decision to restrict access to rare earth materials, which prompted President Donald Trump’s threat to impose 100% tariffs on imports from China.
Milan said the conflict added to the level of uncertainty in a year when conflicts were already high.
“I felt more optimistic about some aspects of the growth outlook because I had been operating on the assumption that the uncertainty had been lifted,” he told CNBC’s Sarah Eisen. “Now, potentially, that’s back to the situation because the Chinese side is going against the agreements they’ve already made.” “So I think we have an obligation as policymakers to think about introducing new tail risks.”
From a policy perspective, Millan said he believes this situation requires the Fed to be aggressive in lowering interest rates.
During the Fed’s term, which began just a month ago and ends in January, Mr. Millan has advocated for an additional 1.25 percentage point cut on top of the quarter-point rate cut approved by the Federal Open Market Committee in September.
“I think current policy is quite restrictive, but that makes us vulnerable to shocks. If you shock the economy when policy is very restrictive, the economy will react differently than if policy were less restrictive,” he said. “I think it’s even more important than it was a week ago that we move quickly to a more neutral position.”
The next FOMC meeting, in which Milan has a vote, will be held on October 28-29 and is widely expected to approve another quarter-point rate cut.
