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North Korea summit cancellation part of 'downside risks' for the economy, Fed's Bostic says

By Jeff Cox | @jeffcoxcnbccom, www.cnbc.com
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май 24-го, 2018

Geopolitical turmoil and policy certainty are combining to make businesses more cautious about investing, Richmond Fed President Raphael Bostic said Thursday.

With nuclear talks between the U.S. and North Korea breaking down, the central bank leader said the developments were "a surprise" and part of "downside risks" for the economy.

"Uncertainty has its own contribution," Bostic told CNBC's Steve Liesman in a live interview from Dallas, where Fed officials were attending a conference on disruption and technology. "Then we actually have to ... figure out what the policy ends up being. If the policy turns out in certain ways, then business can go forward."

Markets reacted negatively to the morning news, with the Dow industrials down more than 200 points and government bond yields down substantially as well.

Trump sent a letter to North Korean leader Kim Jung Un, saying that recent rhetoric from Kim made a summit impossible at this point.

In addition, Trump announced possible new tariffs on imported vehiclesto the U.S. even as Treasury Secretary Steve Mnuchin earlier this week said that a trade war with China had been averted at least for the moment.

"You're at the fork in the road and there are multiple ways you can go," Bostic said. "What I'm hearing from business is we're going to wait and we're going to see what happens, and I think that will offset some of the impact."

On other matters, Bostic said he thinks the Fed is getting close to the end of its rate-hiking cycle.

The so-called neutral rate, he said, is probably around 2.25 percent to 2.75 percent, which would imply between three and five more increases in the Fed's benchmark funds rate. The comments come a day after the Federal Open Market Committee, of which Bostic is a voting member, released minutes from a meeting earlier this month that indicated officials are comfortable with letting inflation run a little hot for a short period of time as the economy grows.

"For me, I think we get to the neutral and we let the economy work," Bostic said.