Federal Reserve vice-chair Richard Clarida said the central bank was monitoring the latest developments in the coronavirus outbreak but offered no indication that it was preparing to cut interest rates yet despite turmoil in the global markets.
“[W]e are closely monitoring the emergence of the coronavirus, which is likely to have a noticeable impact on Chinese growth, at least in the first quarter of this year,” he said in prepared remarks on Tuesday.
“The disruption there could spill over to the rest of the global economy. But it is still too soon to even speculate about either the size or the persistence of these effects, or whether they will lead to a material change in the outlook.”
Mr Clarida’s comments came amid a sharp sell-off across global markets and a rush into haven assets. A few hours before Mr Clarida spoke, the yield on the benchmark 10-year Treasury note hit a record low of 1.32 per cent, indicating a rise in price, while the yield on the longer-dated 30-year bond slipped to a new low of 1.78 per cent.
Investors still see it as overwhelmingly likely that the Fed will hold its policy rate at 1.5-1.75 per cent when it meets next month, based on trader bets compiled by the CME Group. But that confidence slipped over the weekend, from a perceived 91 per cent chance last week to 77 per cent chance on Tuesday, as markets gyrated in response to the latest coronavirus developments.
On Monday Loretta Mester, president of the Cleveland Fed, also declined to predict how the virus might affect growth in the US. She said that she was “carefully monitoring” its spread, but described it as a “risk,” and not something that had changed her baseline forecast.
Like Mr Clarida, Ms Mester is a voting member of the Fed’s rate-setting committee this year.
Fed policymakers tend to say that they do not make policy in response to market conditions, particularly stock markets.
The first read on whether the virus has had an effect on demand in the US will come on March 4, when the Fed releases its Beige Book, a readout of conversations with local and regional business owners. On March 7, the Bureau of Labor Statistics will release its employment report.