US monetary policy in the trade war

Trade wars have the potential to create additional inflationary pressures before economic activity is dampened. US monetary policy could be more restrictive at first, but then more expansionary again.

Both in his testimony to the US Senate on July 17 and in a recent interview on Marketplace, Federal Reserve President Jerome Powell struck a confident tone about the shape of the US economy. In his interview, he emphasized that “the economy's in a really good place (...) unemployment is now 4 percent (…) we've seen people coming back into the labor force or not leaving it (…) inflation has very gradually moved up and it's now just touching 2 percent. So we're really close to our target. I wouldn't say we've fully achieved it yet.”

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