WASHINGTON (Kyodo) — Federal Reserve Chairman Jerome Powell said Tuesday that the U.S. central bank is paying close attention to economic impacts that could spill over from the coronavirus outbreak in China, while emphasizing that the U.S. economy is performing well.
“Some of the uncertainties around trade have diminished recently, but risks to the outlook remain. In particular, we are closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy,” Powell said in his congressional testimony.
The crisis surrounding the pneumonia-like illness has emerged as a new risk to the global economy, at a time when concerns over the tense relationship between the United States and China have been receding in the wake of the phase-one trade deal signed by the two countries last month.
The spread of the virus has led economic activity to stall in the world’s second largest economy while affecting supply chains and tourism.
“I think we know there will be effects on China through some part of the first half of the year and China’s close neighbors and major trading partners in Europe as well as in Asia. And we know that there will…very likely be some effects on the United States,” the Fed chief told the Financial Services Committee of the House of Representatives.
But he added that “it’s just too early” to answer key questions such as whether the impact will be persistent and represent a “material change” in the economic outlook that would require the Fed to react with a shift in its monetary policy.
From July to October last year, the Fed cut interest rates three times to provide what it called “insurance” against risks, such as the then-intensifying trade war between the United States and China. It then signaled a pause in further rate cuts unless fresh developments were to prompt a change in the outlook.
“The economy appeared resilient to the global headwinds that had intensified last summer,” Powell said.
He also said the current stance of monetary policy is believed to support continued economic growth, a strong labor market and inflation returning to the Fed’s 2 percent objective.
“As long as incoming information about the economy remains broadly consistent with this outlook, the current stance of monetary policy will likely remain appropriate,” he said.
The new coronavirus was first detected late last year in Wuhan, a business and logistics hub in central China that has been locked down to contain the outbreak. The death toll has exceeded 1,000 in the country, more than that in the 2002-2003 SARS coronavirus pandemic.
Powell said the Chinese government is taking “strong measures” to contain the crisis and that the People’s Bank of China has also “done a number of things” to keep the economy on track, apparently including moves to inject liquidity into its financial system.
“I think you can expect the Chinese government to do lots of things to support economic activity, and they’ve said that they’re open to cushion the economic effects,” he said.
