Photo: VCG

 
A senior Federal Reserve official said Tuesday that he expected US economic growth to "be weak" in the fourth quarter of the year as businesses cut inventories due to trade uncertainty.

"One of the reasons the fourth quarter is going to be weak, we believe, is probably a significant inventory adjustment, which might be as much as half a percent or more of GDP growth," Robert Kaplan, president of the Federal Reserve Bank of Dallas, said in an interview with U.S. business and financial news network CNBC.

"Just means people have been destocking. And probably the reason they were destocking is there was a lot of pessimism over the last number of months about, you know, future growth prospects," he said.

US economic growth is expected to fall to an annual rate of 0.4 percent in the fourth quarter from 1.9 percent in the third quarter, according to the latest forecast released by the Federal Reserve Bank of Atlanta last week.

The Fed official noted that uncertainty over trade is one of the major reasons that undermine global growth and business investment.

"I think weak manufacturing, weak global growth, weak business investment all relate to uncertainty regarding trade. And if that got stabilized, I think we'd have a chance to see those measures improve," he said.

Kaplan believed the "mid-cycle adjustment" that Fed Chairman Jerome Powell had alluded to this summer is over "for the time being."

"I think 1.5 to 1.75 percent on the Fed funds rate is about right," he said. "I'd need to see some material change in the outlook to cause me to want to adjust that rate."

The Fed has already lowered interest rates three times since July, amid growing risks and uncertainties stemming from trade tensions, weakness in global growth and muted inflation pressures.