Federal Reserve Chairman Jerome Powell acknowledged on Tuesday that the coronavirus outbreak could cause disruption to the economies of China and, consequently, the entire world, while U.S. President Donald Trump lambasted the central bank for not lowering interest rates again.
“Some of the uncertainties about trade have been reduced recently, but the risks to the outlook remain. In particular, we are watching closely the emergence of the coronavirus, which could generate disruptions in China that would spread to the rest of the global economy,” Powell said in his prepared speech before his semiannual congressional hearing.
In this regard, he stressed that “it is still too early” to know “the effects” on the U.S. economy that the spread of the coronavirus, whose first outbreak appeared in the Chinese town of Wuhan and has already claimed more than a thousand deaths, will have, and whether “they will be persistent and substantial.
Despite the doubts, Powell said that the U.S. economy is “in good shape” after three consecutive interest rate cuts in 2019.
“As long as the information coming in about the economy remains in line with the outlook, the current monetary policy position (of the Fed) will probably remain appropriate,” Powell added.
China’s health authorities reported today that 1,016 deaths from the coronavirus that causes Wuhan pneumonia (a city of 11 million people) have already been certified among the 42,638 diagnosed in the country.
To date, all but two of the deaths – in the Philippines and Hong Kong – have occurred in mainland China, and although about 20 countries have diagnosed cases of pneumonia, China accounts for about 99 percent of those affected.
To try to contain the outbreak, China, the world’s second largest economy after the US and a global centre for supply chains, has imposed severe restrictions on travel within the country and many factories have already stopped or slowed down.
At its first meeting of the year in January, the Fed left rates unchanged in the range of 1.50% to 1.75%.
The president of the central bank warned of the limited room for manoeuvre with such low rates, pointing out that “a more sustainable federal budget could help economic growth in the long term”, in clear reference to the country’s growing fiscal deficit and heavy debt.
The U.S. budget deficit shot up 26% in fiscal year 2019 to nearly $1 trillion ($984 billion), the highest figure in seven years due to Trump’s aggressive tax cuts and lower-than-expected growth.
In an unusual gesture, Trump commented in real time on Powell’s appearance before House members, with further criticism of the Federal Reserve’s monetary policy, which he has repeatedly urged to lower the price of money.
“When he began his testimony today, the Dow Jones (Wall Street’s leading stock indicator) was up more than 125 points, and rising. As he spoke, it began to fall steadily as usual by 15 points. Germany and other countries receive money to borrow. We are better, but interest rates are too high, and the dollar is hard on exports,” Trump said on his Twitter account.
Shortly after the president’s words, however, the stock market rebounded and the Dow Jones returned to positive values.
The Fed’s next monetary policy meeting is scheduled for March 17-18.