Minneapolis Fed President Neel Kashkari highlighted the economic risks tied to shifts in the US trade balance and lingering uncertainty from ongoing trade disputes.
Speaking at an event overnight, Kashkari noted that the US’s persistent trade deficit has long been supported by foreign capital inflows, which have helped keep interest rates low. However, if the U.S. were to move toward a trade surplus and lose its status as the “singular premier destination for capital”, borrowing costs could rise, along with the neutral interest rate.
Kashkari emphasized that resolving current trade disputes with major partners could provide much-needed clarity for businesses and households, reducing the “extraordinary uncertainty” they currently face.
He warned that a collective loss of confidence could quickly ripple through the economy, “really bring down the economy, really slow it down” and potentially triggering job losses. While such a downturn hasn’t materialized yet, Kashkari said it’s a risk he is “keeping a close eye on.”
