Fed chief says deal on new NAFTA could settle economic jitters

Federal Reserve Chairman Jerome Powell on Wednesday said that the approval of President Trump’s proposed North American trade reboot could help soothe uncertainty hindering the economy.

Powell told reporters that while he would not weigh in on the details of Trump’s update to the North American Free Trade Agreement (NAFTA), cementing the changes could clear some global economic headwinds.

“If the deal were to be enacted then it would certainly remove some of the trade policy uncertainty and that would be, I believe, a positive for the economy,” Powell said moments after the Fed announced it would hold interest rates steady.

After more than six months of intense negotiations, House Democrats announced Tuesday a deal with the Trump administration to pass the U.S.-Mexico-Canada Agreement (USMCA). Democrats touted their ability to secure stronger environmental and labor standards, an enhanced enforcement regime, and the removal of protections for certain pharmaceuticals.

The deal will also create greater access markets for U.S. farmers, including long-sought provisions to allow American dairy producers to sell more products in Canada.

Trump and House Democrats are eager to pass the USMCA before the end of 2019, though Senate Majority Leader Mitch McConnell (R-Ky.) said Tuesday it would be impossible to clear the deal until the end of a potential impeachment trial.

Passing USMCA holds political promise for Trump, who pledged during his 2016 campaign to rip-up NAFTA, as well as Democrats eager to show they can still legislate while pursuing impeachment against the president. Securing a new North American trade pact would also take Trump’s threat to pull out of NAFTA off the table and close a front in his global trade war.

Trump is also seeking a resolution to his trade war with China ahead of a slate of new tariffs set to take effect on Dec. 15. Powell said Wednesday that an end to the U.S.-China trade war could give the economy an even bigger boost by eliminating a deeper level of volatility.

“One way to look at it is, ‘What’s been moving financial markets?’ It’s been news about the negotiations with China, not so much USMCA,” Powell said.

“The difference between NAFTA and USMCA is smaller than the difference between arrangements with China and what’s being negotiated,” he said.

Powell and the Fed have been forced to navigate the rising costs and anxiety driven by Trump’s trade battles with China, Mexico, Canada and the European Union. Trade-related uncertainty was among several factors that pushed the Fed to cut rates three times in 2019 after hiking four times in 2018.

Trump has also sought to bully the Fed into lower rates, insisting the independent central bank should match ultralow and negative rates in countries engaged in trade talks with the White House. Powell has brushed off Trump’s pressure, asserting that the Fed’s decisions would be driven by data.