The Latest: Senators press Fed chairman on trade threats

Federal Reserve Board Chair Jerome Powell testifies before the Senate Committee on Banking, Housing, and Urban Affairs on 'The Semiannual Monetary Policy Report to the Congress', at Capitol Hill in Washington on Tuesday, July 17, 2018. (AP Photo/Jose Luis Magana) –The Associated Press

WASHINGTON (AP) — The Latest on Federal Reserve Chairman Jerome Powell’s semi-annual testimony to Congress on Tuesday (all times local):

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11:40 a.m.

Powell faced a number of questions about a tit-for-tat trade war with penalty tariffs imposed by the United States on its trading partners and those countries retaliating with tariffs on U.S. goods.

Sen. Jon Tester, D-Montana, and Sen. Heidi Heitkamp, D-N.D., both expressed concerns about what the retaliatory tariffs were doing to farmers in their states.

Sen. Pat Toomey, R-Pa., said he was worried about reports that businesses were cutting back on their investment spending plans because of growing uncertainty about trade.

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Powell agreed that Fed officials are hearing numerous reports from businesses who are putting capital spending plans on hold because of uncertainty over trade.

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10:50 a.m.

Sen. Bob Corker, R-Tenn., told Powell he is “very concerned” about stagnant wages and asked about the root causes of the long-term issue.

Powell cited the stagnation of “educational achievement” in the U.S., which has led to stagnant productivity. He said the only way for incomes to up is through higher productivity.

Weak investment by businesses in the wake of the recession is also “casting a shadow” on productivity now, he added.

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10:45 a.m.

Powell did not specifically answer a question about what might happen to the U.S. economy in a trade war with tariffs rising.

Although he stressed that he was not commenting on the current get-tough trade policy being pushed by President Donald Trump, Powell did say that history indicates higher tariffs harm growth while lower tariffs support growth.

“In principal, countries who remain open to trade have grown faster with higher incomes,” Powell said, adding that countries that have raised tariffs in protectionist moves have fared worse.

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10 a.m.

Powell is giving lawmakers an upbeat assessment of the economy and expects to keep raising interest rates gradually. He says solid job gains and strong economic growth has enabled the Fed to dial back the “extra boost” it implemented during the financial crisis and recession.

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In his semi-annual testimony to Congress, Powell says that the Fed’s process for slowly raising interest rates has been “running smoothly.” He says the Fed expects the job market to remain strong and inflation to stay near 2 percent over the next several years.

Among the uncertainties that could alter his forecast, Powell says that it is “difficult to predict the ultimate outcome of current discussions over trade policy.”