Federal Reserve Keeping an Eye on the Coronavirus

Matty-Sways

The Federal Reserve is keeping a very close eye on the spreading Coronavirus and its effects on China's slowing economy.

The Federal Reserve is keeping a very close eye on the spreading Coronavirus and the effects that it is having on China and their slowing economy.

“We’ll be watching this carefully,” Mr. Powell said. “The question for us really is what will be the effects on the U.S. economy? Will they be persistent? Will they be material? That’s really the question.”

“There’s no way to be confident about anyone’s assessment, and there are a range of assessments. We find the U.S. economy in a very good place, performing well,” Mr. Powell said. “We see signs of global growth bottoming out.” For whatever reason, the President has not hidden his feelings on lowering interest rates as he believes that not doing so will slow the economy.

The Fed did cut the federal fund rate three times last year as President Trump publicly called them out for being too dovish in cutting the benchmark rate, going as far as declaring that they were hurting the growth of the economy. The market already has two rate cuts priced in for 2020. However, the Federal Reserve is taking time to see how the virus will affect the US economy.

Mr. Powell stated that the Fed had held rates at 150 to 175 basis points in the last two meetings as the trade war seems to be winding down after the deal signed in January where both countries slashed tariffs and committed the Chinese government to buy $200 Billion in US goods.

Powell continued, “Of course, policy is not on a preset course. If developments emerge that cause a material reassessment of our outlook, we would respond accordingly. The Fed's goal is to hold inflation at 2%, but if they keep cutting interest rates with a sub 2% inflation rate it will handcuff the Fed when an economic slowdown or even worse a recession hits the US meaning the Fed may have to rely on Congress to help jump-start economic growth.

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