Fed Officials Weigh Risks of Covid-19 -- Update
13 February 2020 - 9:02AM
Dow Jones News
By Michael S. Derby
Two regional Federal Reserve officials said Tuesday that the
novel coronavirus, which causes the illness known as Covid-19, in
China was casting uncertainty over the U.S. outlook, with one
official hinting that a worst-case scenario might call for lower
short-term interest rates.
But for now, neither suggested it was time to change rates after
the rate-setting Federal Open Market Committee lowered them three
times last year in a bid to buffer the economy against trade
uncertainty and slowing global growth.
The current target rate range stands between 1.50% and 1.75%,
and in their most recent forecasts central bankers said they don't
expect to change that range this year.
When it comes to monetary policy, "I would say it's steady as
she goes right now, and we can just take the data as it comes in"
before changing anything, St. Louis Fed leader James Bullard told
reporters on a conference call after a speech in St. Louis. For the
interest-rate outlook, "I think an important element is whether
inflation is moving back toward target."
Mr. Bullard isn't a voting member of the FOMC this year but was
last year, and he was one of the central bank's strongest
supporters of lowering rates. Minneapolis Fed leader Neel Kashkari,
who also spoke Tuesday in an appearance in Montana, was also a
strong supporter of lower rates, and holds an FOMC vote this
year.
Mr. Kashkari said that the current setting of monetary policy is
either neutral or slightly stimulative but that any significant
worsening of Covid-19 could affect Fed policy. "One could imagine
monetary policy responding...to help the U.S. economy manage its
way through" trouble if it were to happen, he said.
On Monday, Philadelphia Fed leader Patrick Harker, who is also
an FOMC voter this year, said he is in favor of holding rates
steady for now. But he added, "if the situation gets significantly
worse, and we start to see significant impact on the U.S. economy,
then we'd have to think about accommodation. But I don't think
we're at that point right now."
The comments by the regional Fed official happened right around
an appearance before Congress by Fed Chairman Jerome Powell. He
again flagged a positive economic outlook and noted that he sees
monetary policy in the right place for now.
Mr. Bullard said the Fed's three rate cuts in 2019 have caused a
substantial easing in financial conditions and "have changed the
outlook for shorter-term U.S. interest rates considerably since
November 2018, ultimately providing more accommodation to the
economy." Those easier conditions have "helped to create a
reasonable prospect that the U.S. economy will achieve a soft
landing in 2020."
Mr. Bullard said he was taking a "wait-and-see" approach toward
gauging the impact of Covid-19 developments.
"The efforts to bring the virus under control are substantial
enough that the Chinese economy is expected to grow noticeably
slower in the first quarter of 2020 than it otherwise would have,"
Mr. Bullard said. "Experience with previous viral outbreaks
suggests that the effects on U.S. interest rates can be tangible
and last until the outbreak is clearly contained," he said.
Mr. Kashkari also renewed his disdain for cryptocurrencies in
his appearance. When it comes to things like bitcoin and similar
currencies, "people are getting fleeced by nonsense."
The Fed official said the cryptocurrency sector is "just a giant
garbage dumpster" and added that "all that's emerging is burning
garbage."
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
February 12, 2020 16:47 ET (21:47 GMT)
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