Virginia economists weigh Fed’s decision

Published June 19, 2019 by Veronica Garabelli

The Federal Reserve maintained the federal funds rate Wednesday at 2.25% to 2.5%, but suggested it may reduce the rate if the economic outlook worsens.

The move came as President Donald Trump has been pressuring the Fed to lower the interest rate—implying Tuesday he may demote Fed Chairman Jerome H. Powell if the rate doesn’t soften.
Virginia economists gave us their two cents on the Fed’s decision, as well as their thoughts on the state and national economic outlook:

Vinod Agarwal, deputy director of Old Dominion University’s Dragas Center for Economic Analysis and Policy in Norfolk

On the economy: “The economy has been doing quite well for the last couple of years, primarily because of increases in federal spending and the tax cuts. Whether we should continue on the same path or not remains to be seen.”

On the impact of political uncertainty, such as the U.S.-China trade war: “Uncertainties cause serious issues in the marketplace. The question is, even if the tariff situation is resolved in the next couple of months … you do expect the economy to somewhat slowdown but not as much [as if the issue isn’t resolved.] This is why The Fed is trying to stay ahead of the game to see if they can react to this in a shorter timeframe.”

Stephen Fuller, director, Stephen S. Fuller Institute in Arlington

On how the state’s economy is outperforming the national economy: “I think this reflects the strength of Northern Virginia from where I'm sitting. Northern Virginia is accounting for almost 90 percent of the job growth in the Washington metro area. … I worry a little bit about the national economy, but Virginia is doing great at this point. [That] doesn't guarantee that 2020 is going to be a great year. I think [it] will be a tough year across the board. But it won't be as tough on Virginians as it will be on some other parts of the country.”

Francis E. Warnock, professor of business administration at the University of Virginia Darden School of Business in Charlottesville

On the Fed’s announcement: “This is the first time that they really pretty strongly signaled that they're considering loosening policy going forward.”

On barriers to economic growth: “It’s definitely the uncertainties around trade policy. When there's a lot of uncertainties, businesses can't plan. If they can't plan, they're not going to expand and that could hit the economy quickly and severely. … [Trade is] a global issue, but it's one that the U.S. is playing a big role in.”