(Reuters) - Atlanta Federal Reserve Bank President Raphael Bostic said on Friday he does not think the U.S. economy is heading into a recession and that stimulus from the Fed should help overcome “bumps” in the road to prolong the expansion.
Fed officials are assessing the downside risks of trade disputes and of geopolitical tensions to determine if the U.S. economy is headed for a “soft landing” or a “steep decline,” Bostic said.
“That’s something we’re still wrestling with and trying to keep our finger on so that we don’t miss something,” he said during a moderated discussion at Tulane University in New Orleans.
Prolonged trade tensions with China are causing some businesses to sit “on the sidelines” and have the potential to affect consumers, he said. Still, he projects that the economy will grow above-trend in 2019, lifted by a tight labor market with an unemployment rate at 3.5%.
“There are lots of reasons to be optimistic about this economy,” Bostic said. “But also we need to recognize that there’s a lot of uncertainty out there.”
His message reflected the uncertainty likely to hang over U.S. policymakers as they head into their October meeting. Bostic does not have a vote in determining monetary policy but he will become a voting member in 2021.
Fed officials were divided about the September rate cut, and approved the second rate reduction this year with a 7-3 vote. The Fed’s target rate is now at a range of 1.75% to 2.00%.
Policymakers are likely to remain split after reviewing mixed economic data this week. Two reports, including one showing a contraction in factory activity and another pointing to a slowdown in services sector growth, raised concerns that global trade tensions and geopolitical risks were starting to weigh down the U.S. economy.
The labor report showed the unemployment rate dropped to 3.5%, but revealed barely any wage growth. Investors widely expect the Fed will cut interest rates again in October but have pared back the chances for another rate cut in December.
Reporting by Jonnelle Marte; Editing by Chizu Nomiyama and Bernadette Baum