Fears over a potential trade war are dampening the prospects for above-trend economic growth, Atlanta Fed President Raphael Bostic said Monday.
At a time when most economists have substantially boosted their outlooks for GDP gains, particularly in the second quarter, the central bank official cautioned that the enthusiasm could be misplaced.
"I began the year with a decided upside tilt to my risk profile for growth, reflecting business optimism following the passage of tax reform. However, that optimism has almost completely faded among my contacts, replaced by concerns about trade policy and tariffs," Bostic said during a speech in Savannah, Georgia, according to prepared remarks.
The White House has been in a battle against China as well as multiple other trading partners as President Donald Trump seeks to reduce the difference between imports and exports.
The administration has leveled tariffs against imported steel and aluminum and a slew of other prospects, with China in particular retaliating. In addition, the president has threatened to pull the U.S. out of NAFTA in favor of seeking unilateral agreements.
Financial markets have been volatile as the trade tensions have grown, and Bostic said that fear is flowing over into the broader economy.
"Perceived uncertainty has risen markedly," he said. "Projects already under way are continuing, but I get the sense that the bar for new investment is currently quite high. 'Risk off' behavior appears to be the dominant sentiment among my contacts."
Bostic also said he agrees with the 0.25 percentage point interest rate hike the Federal Open Market Committee approved last week, though he said he's not sure about the path of increases ahead.
He said he does not seen signs of aggressive wage growth, with companies opting to train their own workers and investing in automation rather than hiring new employees at higher pay.
"We want to ensure that the economy is not overheating, but we also do not want monetary policy to become too restrictive and threaten to choke off the expansion," Bostic said.
The Atlanta Fed maintains a widely followed economic tracker called GDPNow that is estimating 4.8 percent growth for the second quarter.