Fed Concerned About Coronavirus, But Not Expected to Raise Rates

With the China coronavirus outbreak in full swing and taking a toll on the global economy, there has been speculation that the Federal Reserve might be forced to lower rates sooner than it would have liked.

However, this scenario appeared to be have been laid to rest on Tuesday, as Fed Chair Jerome Powell testified before the House Financial Services Committee. Powell acknowledged that the outbreak could pose serious economic risks, but he maintained that the Fed did not plan to change its current monetary policy. Powell told lawmakers that the Fed was “closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy”. Although the coronavirus posed a risk to the economic outlook, Powell said that “the current stance of monetary policy will likely remain appropriate.”

Powell has now been at the helm of the U.S. central bank for two years, and he has shown an ability to be aggressive – in 2019, the Fed trimmed rates three times, in response to weak global growth and the fallout from the ongoing trade war with China. The U.S. and China have since reached a limited trade agreement, although many tariffs still remain in place. The economic wildcard is, of course, the China coronavirus. The outbreak has severely disrupted China’s economy and damaged countries with close economic links to China, such as Japan and Australia. If the virus is not contained shortly, the damage to the global economy will be substantial, and Powell and his colleagues at the Fed may have to revisit the possibility of lowering interest rates.