Fed Report: Possible Spillovers from Coronavirus in China Pose New Risk to Economic Outlook
February 07 2020 - 10:30AM
Dow Jones News
By Nick Timiraos
WASHINGTON-The Federal Reserve said Friday that risks of
weaker-than-expected U.S. growth had declined late last year but
that the possible spillovers from the effects of the new
coronavirus in China present a new risk to the outlook.
In its semiannual report to Congress, the central bank said the
U.S. economy remains on a solid footing after more than 10 years of
expansion, with labor markets providing more than enough jobs to
absorb new entrants to the workforce.
Fed officials at their meeting last week left their benchmark
federal-funds rate steady in a range between 1.5% and 1.75% and
signaled little reason to change course for now. Officials cut
rates three times last year amid worries about a
sharper-than-anticipated slowdown in global growth and business
investment.
"Recent indicators provide tentative signs of stabilization. The
global slowdown in manufacturing and trade appears to be nearing an
end, and consumer spending and services activity around the world
continue to hold up," the report said.
But it said the recent emergence of the coronavirus, which has
led to quarantines in China and a halt to travel in and out of the
country, "could lead to disruptions in China that spill over to the
rest of the global economy."
Fed Chairman Jerome Powell is scheduled to deliver the report
and testify on Capitol Hill Tuesday and Wednesday as part of
hearings mandated by law.
The Labor Department's monthly employment report, released
separately on Friday, showed the U.S. economy added 225,000 jobs
last month. The share of Americans with a job rose, as did those
looking for work, which brought the unemployment rate up to 3.6%
from 3.5% in December.
While inflation ran slightly below the central bank's 2% goal
last year, Friday's report from the Fed said measures of consumers'
and businesses' expectations for future inflation have been
stable.
Financial markets had been ebullient last month due to a trade
truce between the U.S. and China and glimmers of firmer global
manufacturing activity. But fears about China's coronavirus
outbreak reignited global growth worries last week, sending the
benchmark 10-year Treasury yield below 1.6%, its lowest level since
October.
While officials raised the bar for additional rate cuts late
last year, they have signaled they see greater risks of surprises
that could prompt them to lower rates than to lift them.
The coronavirus is the latest example of such a development. Fed
officials have called it a "wild card" and have said they are
carefully monitoring the implications of idled business activity in
China, the world's second largest economy.
"It is too early to say what the full economic effect of the
outbreak will be," said Randal Quarles, Fed vice chairman for bank
supervision, in remarks Thursday in New York.
The U.S. economy grew at an average annual rate of 2.1% during
the second half of 2019, somewhat slower than in recent years but
slightly above the rate most Fed officials expect to prevail over
the long run.
Friday's report estimated that last year's decline in factory
production in the U.S. would reduce overall growth by around 0.2
percentage points last year. After accounting for downstream
effects of those production declines, economists estimate the
contraction would shave no more than 0.5 percentage points from GDP
growth, which the report said was "not enough to tip an
otherwise-expanding economy into recession."
(END) Dow Jones Newswires
February 07, 2020 11:15 ET (16:15 GMT)
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