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Trade War, Trump Tweets Add To Confusing Signs For The Economy

NOEL KING, HOST:

There has been a lot of economic news over the past few days. Late last week, central bankers got together for their annual meeting in Jackson Hole. Leaders of the wealthy G-7 countries are meeting in France as we speak. China and the U.S. threatened to raise tariffs on each other through the weekend. And President Trump has confounded markets with his tweeting about trade and China.

David Wessel of the Hutchins Center at the Brookings Institution is with us to talk about what this means for American workers and consumers. Good morning, David.

DAVID WESSEL, BYLINE: Good morning.

KING: So David, things are changing, sometimes by the hour, over the past few days. President Trump said this morning from the G-7 summit that China wants to make a deal on trade.

WESSEL: Right. So I think what we've seen over the last couple days is this kind of on-again, off-again we're going to go to - have a trade war with China; we're trying to have a truce. And today the Chinese are making noises about wanting to resume talks. So that's one thing that's going on.

Second thing that's going on is the Federal Reserve is saying that it's trying - it's having a hard time protecting the economy from the damage it thinks that the president's trade war is going to do, but it's going to try by continuing to cut interest rates. And then there's this slowdown in the world economy in Europe as well as China, and that's clearly of concern to the leaders of the G-7. But there's been no consensus at their summit on how best to respond to that. And there's little apparent will among the seven to work together to get the economy moving faster.

KING: So it is very chaotic. And yet - and we've talked to you about this a lot - by many indications, the U.S. economy is still doing really well. So what does all of this messiness mean for the typical American family?

WESSEL: Well, you're right. The economy is doing reasonably well so far despite some weakness in manufacturing, some weakness in exports and some communities that are still been left behind (ph). We're adding jobs, but growth is slowing. Inflation seems to be under control. Gas prices are actually coming down, but the price of some exports are going up. Interest rates are coming down, and that's good for homebuyers and people refinancing mortgages and for the U.S. government - not so good if you're trying to save money in a certificate of deposit or a money market fund.

So if we could keep going like this, I think we could all relax. The big worry is that this is basically as good as it's going to get. And that's the signal we're getting from financial markets - that there is trouble ahead.

KING: Yeah, the financial markets seem to shudder every time President Trump tweets or makes offhanded comments. After all of this time with him in the office of president, why are they still doing that?

WESSEL: You know, that's a great question. I think that the president has less impact when he attacks an individual company these days. People have disregarded that. But he's still the president of the United States. Now, you know, it's often said that markets and business abhor uncertainty. But we're well beyond uncertainty now. It's more like chaos. And so I think people are having a hard time figuring out which way we're going. Are we going to pull back from China, or are we going to cut a deal?

You know, it's - what's really interesting to me is usually a president going into an election year does everything he can to boost the economy. But the president - and he seems to recognize the economy is a political risk. But so far, he hasn't figured out what to do about it except beat up on the Fed.

KING: Let me ask you. I know a lot of people have been talking about a recession on the horizon. And it is almost - it is impossible to predict a recession, so I'm not going to ask you to take a guess. But let me ask you this...

WESSEL: Thank you (laughter).

KING: ...If we think you have a recession, David, are governments around the world and central banks around the world ready to respond?

WESSEL: No, I don't think they are. I think that interest rates are already low, it's hard for central banks to cut them, and governments have a lot of debt. So it's going to find it hard to cut taxes and increase spending. So I think that's one of the big things that we have to worry about now. A lot of economists say the best way to prevent a recession is for the president to let up on this tariff war.

KING: David Wessel of the Hutchins Center at the Brookings Institution - thanks, David.

WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.