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

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?”

  • Updated Feb. 10, 2020

    • What is a Coronavirus?
      It is a novel virus named for the crown-like spikes that protrude from its surface. The coronavirus can infect both animals and people, and can cause a range of respiratory illnesses from the common cold to more dangerous conditions like Severe Acute Respiratory Syndrome, or SARS.
    • How contagious is the virus?
      According to preliminary research, it seems moderately infectious, similar to SARS, and is possibly transmitted through the air. Scientists have estimated that each infected person could spread it to somewhere between 1.5 and 3.5 people without effective containment measures.
    • How worried should I be?
      While the virus is a serious public health concern, the risk to most people outside China remains very low, and seasonal flu is a more immediate threat.
    • Who is working to contain the virus?
      World Health Organization officials have praised China’s aggressive response to the virus by closing transportation, schools and markets. This week, a team of experts from the W.H.O. arrived in Beijing to offer assistance.
    • What if I’m traveling?
      The United States and Australia are temporarily denying entry to noncitizens who recently traveled to China and several airlines have canceled flights.
    • How do I keep myself and others safe?
      Washing your hands frequently is the most important thing you can do, along with staying at home when you’re sick.

“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.

The housing market perked up as the Fed made its cuts, and the economy as a whole is growing steadily through a record 11th year of expansion.

Despite that, Mr. Powell has remained the subject of near-constant White House complaints. Mr. Trump told Fox Business Network on Monday that “we should have a lower interest rate” and said Mr. Powell “let me down.”

“I think he’s done the wrong thing,” the president added.

As Mr. Powell testified Tuesday, Mr. Trump commented on his performance on Twitter, seemingly blaming the Fed chair as stock prices drifted down. Prices later recovered, and it was unclear what had caused the minor wobble, which occurred amid developing news about the coronavirus and potential regulatory action involving technology companies.

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.

Mr. Powell has met extensively with lawmakers from both the House and the Senate, and he tends to get a comparatively welcoming reception during his visits to Capitol Hill.

A good relationship with Congress could prove essential in the next recession. Interest rates have fallen across advanced economies as the population has aged, and productivity growth has slowed, which means that the Fed will likely have less room to cut borrowing costs to coax the economy back to life in future downturns.

That means “it would be important for fiscal policy to help support the economy if it weakens,” Mr. Powell said. He tied that point to a pet topic of his: the size of the government’s debt.

“Putting the federal budget on a sustainable path when the economy is strong would help ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy during a downturn,” he said. “A more sustainable federal budget could also support the economy’s growth over the long term.”

The budget deficit topped $1 trillion in 2019, and the Congressional Budget Office expects trillion-dollar deficits for the next several years.

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