Jan 3 (Reuters) - The U.S. economy is “healthy” and likely to continue growing, though elevated tensions between the United States and Iran are a reminder that outside shocks could still derail the country’s more than decade-long recovery, Richmond Federal Reserve president Thomas Barkin said on Friday.
“The economy is still healthy. I’m encouraged by recent jobs reports and the pace of holiday spending,” with last year’s round of three Federal Reserve interest rate cuts helping prop up demand for homes, cars and other big-ticket consumer items Barkin said.
But on a day when global oil prices spiked and stock markets fell after a U.S. strike on an Iranian militia leader in Iraq, Barkin noted that recent recessions have been triggered by unexpected shocks - an economic “heart attack” as he termed it - that came amid the same sort of continued growth and low unemployment the United States is experiencing now.
“There’s always the possibility of a ‘heart attack,’ or shock, perhaps caused by global risks. Imagine an escalation with Iran or a collapse in international economies,” Barkin said in remarks to the Maryland Bankers Association in Baltimore.
The Fed through much of last year noted that uncertainty around global trade policy and events like the UK’s pending split with the European Union were holding down business investment and posed perhaps the key risk to the U.S. recovery.
Policymakers cut interest rates three times as “insurance” to help make certain those risks did not push U.S. growth off track. Barkin said he was “hopeful” about recent progress in U.S.-China trade talks and signs that Brexit may pass without a major economic disruption.
“Recession isn’t inevitable” absent some shock, he said, “along many dimensions the economy looks quite healthy.”
Still, risks remain, with companies yet to have a fully clear idea about the global trade environment that is emerging.
“Add political polarization and regulatory uncertainty to the mix and it’s tough for businesses to feel like they’re on solid ground...I don’t discount the idea that we could talk ourselves into a recession, particularly if the uncertainty begins to affect consumer confidence and spending,” Barkin said. “In my view, the biggest boost to our economy would come from lessening the uncertainty and lowering the volume.”
Reporting by Howard Schneider; Editing by Andrea Ricci