The U.S. Federal Reserve (Fed) has shown concerns that President Donald Trump's trade war could deal a long-term blow to the country's status as a 'safe asset' in the economy.

Jerome Powell, the Chair of the United States Federal Reserve (Fed). /Courtesy of AFP-Yonhap News

According to the minutes of the Federal Open Market Committee (FOMC) meeting released on the 28th (local time), some Fed officials noted the simultaneous decline in bonds, stocks, and the value of the dollar following the U.S. government's broad tariff measures. They suggested that American assets, traditionally favored by global investors during market turmoil, may no longer be recognized as a 'refuge.' It was also emphasized that the dollar's weakness has reinforced investors' tendency to diversify their assets.

The minutes pointed out that 'the trend of American assets not being recognized as safe assets could influence the economy in the long term.' This analysis followed the market turmoil that occurred right after President Trump announced the tariffs on 'Liberation Day' last April. At that time, high tariffs aimed not only at China but also major trading partners like the EU were announced in succession, significantly shaking the global financial markets.

For a long time, the U.S. has served as the ultimate safe haven for global investors during crises. However, there are growing concerns that this status is wavering as bonds, stocks, and the dollar all show weakness. This could lead to a decline in trust in U.S. financial markets, raising alarm bells even within the Fed.

The meeting also raised the possibility that trade conflicts could drive prices up and push inflation above the central bank's target rate of 2%. Most attendees reportedly agreed that inflation could persist longer than expected. Some Commissioners also emphasized that if inflation arises from 'supply-side pressures,' it would be difficult to respond solely with monetary policy.

Meanwhile, Philip Swagel, Director General of the U.S. Congressional Budget Office (CBO), warned in an interview with the Financial Times (FT) that 'if capital flows out of the U.S., it could lead to slower growth, job losses, and rising government bond rates.' Such changes could directly burden the financial soundness of the United States.

The Fed is currently keeping its benchmark interest rate in the range of 4.25% to 4.5% and has maintained its stance that it will not pursue rate cuts for the time being due to the uncertain impact of tariffs on actual prices.