Federal Reserve Chairman Jerome Powell told Congress Tuesday that Fed officials aim to hold interest rates steady barring a “material” change in their outlook, though he said they’re “closely monitoring” the coronavirus for disruptions “that could spill over to the rest of the global economy.”
The Fed cut its benchmark federal funds rate three times last year during the Trump administration’s trade war with China and as global growth turned sluggish. The outlook brightened somewhat late last year.
“With some uncertainties surrounding trade having diminished and amid some signs that global growth may be stabilizing, the (Fed) left policy rate unchanged,” Powell said testimony before the House Financial Services Committee.
Are you a devoted Macy’s shopper? Macy’s launches next phase of Star Rewards program with new benefit for all shoppers, contest
He said, “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.”
In its monetary policy report to Congress, the Fed used somewhat stronger language, saying that “possible spillover effects of the coronavirus … have presented a new risk to the outlook.”
Since the Fed’s last meeting in January, the number of coronavirus cases has surged past 43,000 worldwide, and the death toll has surpassed 1,000. Most of the infections are in China, but there have been 12 cases in the USA.
Moody’s Analytics expects the virus to shave nearly half a percentage point off U.S. economic growth in the first quarter by severely curtailing tourism from China, reducing U.S. exports to the country and generating uncertainty that hurts stock and bond markets. The halt to Boeing’s production of its 737 Max airliner after two fatal crashes is likely to trim another half percentage point off growth.
Despite that nearly percentage point reduction, economists predict growth of about 2% in the current quarter and almost 2% for all of 2020.
In his prepared testimony, Powell said, “Over the second half of last year, economic activity increased at a moderate pace, and the labor market strengthened further as the economy appeared resilient to the global headwinds that had intensified last summer.”
He said job gains have been solid, averaging 200,000 a month during that period, and the economy has grown moderately, bolstered by consumer spending.
Powell reiterated his plea to Congress to put the federal budget “on a sustainable path,” so money is available to boost growth during a downturn.
A federal deficit of about $1 trillion is projected over the next decade, partly as a result of tax cuts and spending increases passed by Congress and spearheaded by President Donald Trump.