Published: Thu, February 13, 2020
Markets | By Otis Pena

Powell says wait-and-see on coronavirus

Powell says wait-and-see on coronavirus

The Federal Reserve will be forced to use large-scale asset purchases "aggressively" in a downturn, Chairman Jerome Powell told USA lawmakers, as central bankers confront the dilemma of persistently low interest rates.

On Monday, Philadelphia Federal Reserve Bank President Patrick Harker said that if the coronavirus-related economic malaise now hurting China spills over and deals the USA economy a material blow, the Fed may be forced to drop interest rates in an effort to contain the fallout. Markets will be most interested in hearing about potential changes to the U.S. central bank's inflation targeting regime. Powell said, "We expect some impacts" to occur on the U.S. economy, but added that it was too early to speculate about the impact.

But the Fed doesn't see any need to ease monetary policy for now.

"I hope to contribute intellectual diversity as a Governor and would work collegially to promote sound money and sound finances", she said.

Continued job gains and rising wages should boost consumer spending this year, despite soft business investment.

And despite the historically low unemployment rate of 3.6 percent, "the African American unemployment rate is roughly twice that of the overall unemployment rate", he said, calling the disparity "troubling".

"It's too early to say what impact the spread of the coronavirus will have on the global economy, but the negative effects on the Chinese economy and worldwide travel are something to watch", Harker said in a speech at the University of DE in Newark on Monday.

Oil edges down as traders assess China's oil demand
Brent futures LCOc1 fell $1.20, or 2.2%, to settle at $53.27 a barrel, their lowest close since December 28, 2018, while U.S. US gasoline refining margins RBc1-CLc1 rose to their highest since August due to a sharp 4.4% increase in gasoline futures.

The Senate Banking Committee holds a nomination hearing for conservative economist Judy Shelton and St. Louis Federal Reserve Bank research chief Christopher Waller on Thursday.

Powell told both committees that the US economy is in generally solid shape, having weathered the headwinds previous year stemming from the U.S.

"The answer to all three questions", he said, "is, 'Let's wait and see'".

She said inflation will have to be pushed up, which "will not be easy", but the Fed has "the tools we need".

On Monday, Federal Reserve Bank of San Francisco President Mary Daly addressed the problem of combating possible economic downturns when the fed funds target is quite low.

"There is no reason why the expansion can't continue", Powell said, repeating the central bank's view that its current target range for short-term borrowing costs, between 1.50 and 1.75 percent, is "appropriate" to keep the expansion on track. We've exercised the muscle of pushing inflation down for so long that changing direction feels unnatural.

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