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Kashkari: Fed now weighing potential impact of trade wars on US economy

The U.S. central bank may need to start focusing more on the potential effects of trade wars as tensions with China ratchet higher, Minneapolis Federal Reserve President Neel Kashkari said at an event in New York.

Kashkari acknowledged that although the U.S. was justified in seeking a "level playing field" in trade with China, a full-fledged trade war would have a tremendous impact. In his remarks March 23, Kashkari warned that a "crisis of confidence" between the world's two largest economies would be the worst outcome.

President Donald Trump has said the U.S. will impose up to $60 billion in tariffs on Chinese goods that allegedly violate U.S. intellectual property rights, while China has threatened to retaliate.

Six months ago, the Fed wasn't discussing risks from trade wars, Kashkari acknowledged.

"Now, we are talking about it," he said.

The central banker also said this month's rate hike from the Federal Open Market Committee was the right thing to do because it was what markets expected.

Kashkari cautioned, however, that wages and inflation still aren't growing at a rate that would justify faster rate increases.

"Personally, I think we have a ways to go before we achieved our dual mandate objectives," Kashkari said. "We would have expected a lot of wage growth with the job market growing."

At its March meeting, the Federal Open Market Committee raised rates, as expected, while new Chairman Jerome Powell signaled that the central bank would take a practical approach toward weighing future hikes. Kashkari isn't a voting member of the FOMC this year.

Kashkari said that he had moved his projections for economic growth up, primarily because of fiscal stimulus provided by tax cuts.

Still, with so much Treasury issuance, the central banker noted that 10-year Treasury yields had yet to take off and top 3%.

"The bond market is saying, that we're not into a rapid growth environment, but we're in a moderate growth market," he said.