WASHINGTON (Reuters) – A report by the Federal Reserve released on Wednesday will provide the first snapshot from the central bank’s business contacts on how deeply the coronavirus is impacting their supply chains and economic outlook and may provide some insight into the urgency that caused policymakers to cut interest rates.
FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo
The Fed lowered borrowing costs by a half percentage point on Tuesday in an emergency move to mitigate the possible economic effects of the flu-like illness on the world’s largest economy, as it kept the door open to further measures should they be required.
It was the Fed’s first emergency rate cut since 2008 at the height of the financial crisis and underscored its concern about the escalating global outbreak.
The Fed frequently surveys its business contacts around the country and the latest temperature check of the economy will analyze the end of January through much of February. The Fed uses the survey, compiled into a report known as the Beige Book, as ground-level intelligence on the economic outlook for the months ahead as business sentiment often front-runs changes in hard economic data.
“The market is searching for what is out there. With the Beige Book, you’re going to potentially capture more up-to-date impacts of what’s going on with key industries within the United States,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
On Tuesday, Fed Chair Jerome Powell said in a hastily arranged press conference that the effects of the virus on the U.S. economy “are at a very early stage but you are hearing concerns from people, for example in the travel business or the hotel business…that’s one of the reasons why we’ve come to the view it would be appropriate for us to move to support the economy.”
The virus took hold in Wuhan, China, causing the Chinese government to close businesses and schools across the country and impose severe travel restrictions in order to try and contain it.
By late February, however, the virus had spread to more than 40 countries, including in Europe, causing financial markets to tumble amid fears the escalating crisis could cause a global recession. It has had little impact so far on U.S. economic data, with consumers still spending and unemployment near a 50-year low but some U.S. companies have already raised alarm bells.
Apple (AAPL.O) last month warned investors it was unlikely to meet revenue targets for the first quarter of 2020 and that global iPhone supplies would be limited as manufacturing sites in China were not ramping up production as quickly as expected. A report earlier this week showed factory activity in China shrinking at a record pace.
“Any company that depends on a supply chain within China, what you’re looking for is a scenario in which you see factories coming back online, workers back at work,” said Quincy Krosby, chief market strategist at Prudential Financial in New Jersey.
But that would still do little to help other industries in the United States, such as tourism and aviation, which have also been hard-hit as businesses globally restrict travel, send workers home and cancel conferences.
Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci