US Federal Reserve chairman Jay Powell has warned that the coronavirus outbreak could “spill over to the rest of the global economy” and said the central bank is “closely monitoring” the situation.
In his semi-annual testimony to Congress, Powell said coronavirus posed a new threat to the US’s economic outlook, even as “the uncertainties around trade have diminished”.
Coronavirus, which emerged in Wuhan, China in December, has now killed more than 1,000 people and spread to more than 27 countries.
Beijing has responded dramatically and put large parts of the country in lock-down, raising fears over the effect on the Chinese economy and global supply chains.
The virus has shaken confidence in the international economy just as investors were feeling more cheery following the signing of the “phase one” US-China trade deal in January.
Powell said domestic demand continued to support the US economy, however, with the labour market adding 225,000 jobs in January.
Therefore, he said, “as long as incoming information about the economy remains broadly consistent with this outlook, the current stance of monetary policy will likely remain appropriate”.
The Fed cut interest rates three times last year to a range of 1.25 and 1.5 per cent as US President Donald Trump’s trade war with China rattled the global economy.
Powell said that the signing of a preliminary US-China trade deal meant “some of the uncertainties around trade have diminished recently”.
Powell struck a pessimistic tone about the manufacturing sector, however, saying it had shown little sign of picking up after a tough 2019.
He said that in 2019 “business investment and exports were weak, largely reflecting sluggish growth abroad and trade developments”.
He added: “Those same factors weighed on activity at the nation’s factories, whose output declined over the first half of 2019 and has been little changed, on net, since then.”