Powell, Warning of a Possible Virus Fallout, Is Slammed Again by Trump

on Feb12
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WASHINGTON — The Federal Reserve chair, Jerome H. Powell, warned lawmakers on Tuesday that the coronavirus epidemic sweeping China could pose broader economic risks, even as he signaled that the central bank was comfortable holding interest rates steady for now.

“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,” Mr. Powell told House Financial Services Committee members.

The central bank chief is also set to testify before the Senate Banking Committee on Wednesday.

The Fed is treading cautiously as the economy continues to add jobs but inflation remains low. An initial trade deal with China has eased one major source of economic uncertainty, but tariffs remain on Chinese goods and tensions with other nations could reignite. And the new virus — which has killed more than 1,000 people and sickened tens of thousands — has emerged as an economic wild card.

“Some of the uncertainties around trade have diminished recently, but risks to the outlook remain,” Mr. Powell said. Still “the current stance of monetary policy will likely remain appropriate” as long as incoming economic information remains in line with the Fed’s outlook.

When asked by lawmakers about the coronavirus, Mr. Powell said the Fed was asking questions including: “What will be the effects on the U.S. economy? Will they be persistent? Will they be material?”

“We know that there will be some — very likely be some — effects on the United States,” he said. “I think it’s just too early to say. We have to resist the temptation to speculate on this.”

Mr. Powell added that “the Chinese government has obviously taken very strong measures” to contain the virus.

“The People’s Bank of China has done a number of things to support economic activity,” he said. “I think you can expect the Chinese government to do lots of things to support economic activity.”

The Fed’s policy rate is now set in a range of 1.5 to 1.75 percent, after officials cut it three times last year to insulate the economy against wobbling global growth and fallout from President Trump’s trade battles.

Mr. Powell was asked about negative rates, which Mr. Trump has repeatedly pressed for in the United States. He said the Fed had chosen to use other tools to stimulate the economy in the last downturn, and would probably do so again in the next.

“When you have negative rates, does it wind up creating downward pressure on bank profitability, which limits credit extension?” he said. “There’s some evidence of that.”

The Fed operates independently of the White House but answers to Congress, which has given it the freedom to pursue its two goals — stable inflation and maximum employment — as it sees fit.

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