“The fundamentals of the US economy remain solid,” although “the coronavirus poses an increasing risk to economic activity,” said Jerome Powell.
–
The US Central Bank says it is ready to act if the new coronavirus epidemic threatens the US economy, which it considers “solid,” amid pressing calls to lower interest rates.
Fed Chairman Jerome Powell said in a statement on Friday that “the fundamentals of the US economy remain solid”, although “the coronavirus poses an increasing risk to economic activity”.
“The Federal Reserve is closely following developments and their consequences for the economic outlook. We will use our tools and act accordingly to support the economy, “he said, without giving further details.
The New York Stock Exchange very briefly reduced its losses.
The Fed began a pause in December, leaving rates between 1.50 and 1.75% after three cuts. And its president Jerome Powell seemed inclined to stop there for a moment.
But the new coronavirus, which spread faster this week, could be a game-changer, even as panic has spread to the stock markets: Wall Street is having its worst week since the 2008 financial crisis, and investors are turning to safe stocks, such as US debt, which has reached historically low levels.
All markets are now betting on a rate cut at the next Fed meeting on March 17 and 18, where they saw none on the horizon a few days earlier.
“The Fed has room to maneuver,” as interest rates are higher in the United States than in Europe, said former Fed chairman Janet Yellen.
“It’s not going to solve everything but it will support consumer spending, the US economy and the financial markets a bit,” she said in Michigan on Wednesday, not ruling out the risk of recession after 11 years of growth.
Antidote to recession
“The Federal Reserve should urge global central banks to act immediately,” said Kevin Warsh, a former Fed governor, in the Wall Street Journal Wednesday, calling for rate cuts.
Bank of England Governor Mark Carney has warned that global growth and that of the United Kingdom should slow down while the President of the European Central Bank (ECB) Christine Lagarde said it monitored “very carefully” the repercussions of the epidemic but did not observe for the time being any “lasting shock” on activity and inflation.
Would lower interest rates be an antidote to a possible recession?
Making credit cheaper encourages consumption to support or revive the economy, which was used to its limits by central banks during the 2008 financial crisis.
In the United States, household consumption alone accounts for 70% of GDP.
Donald Trump, campaigning for re-election, has been calling for such a drop for months, and re-launched hostilities on Wednesday: “We should pay lower interest rates.”
He also admitted that the epidemic would likely prevent US growth from reaching 3% in 2020, growth being his big argument for staying in the White House.
The prospect of a rate cut does not delight economist Joel Naroff: “The concern is that Mr. Powell again panics and uses his tool of last resort, lowering interest rates.” At the risk, according to him, of leaving less room for maneuver to support growth in the event of an economic slowdown.
–
