The Federal Reserve is monitoring the economic fallout from the viral pandemic that emerged two months ago in China and stands ready to respond if needed, Fed Chairman Jerome Powell said in testimony to Congress.
“In particular, 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,” Powell told the House Committee on Financial Services on Tuesday.
The deadly virus sparked a U.S. bond rally in recent weeks as international investors sought the safe haven of dollar-denominated fixed assets. That increased the competition for mortgage bonds, driving down yields, which translated into cheaper rates for home loans.
As Powell was speaking, the World Health Organization announced the name of the new coronavirus: Covid-19. The “co” stands for corona, the “vi” designates it’s a virus, the “d” refers to disease, and the “19” designates the year it first appeared, WHO said.
The death toll for the virus that emerged in the Chinese city of Wuhan two months ago already has surpassed the two-year death total for SARS. Economists are worried the pandemic will slow global economic growth and hit the U.S. economy.
Also as Powell was speaking, President Donald Trump used Twitter to blame him for a dip in the stock market that later reversed and approached record highs. The wobble could have been caused by the WHO update on the coronavirus or by other financial news, such as a Federal Trade Commission announcement that it was reviewing acquisitions by large tech companies.
“When Jerome Powell started his testimony today, the Dow was up 125, & heading higher. As he spoke it drifted steadily downward, as usual, and is now at -15,” Trump tweeted. “Fed Rate is too high.”
Several of the questions for Powell from House members were about the new virus and the potential economic effects on the U.S.
“We know that there will very likely be some effects on the United States,” Powell said. “I think it’s just too early to say, and we have to resist the temptation to speculate on this.”
Powell also had some words of criticism for Congress – though couched in Fed-speak, which softens the blow. He warned the House committee that because of last year’s cuts in the central bank’s benchmark rate, the Fed doesn’t have a lot of wiggle room to support the economy if a downturn comes.
But, he added, there’s something lawmakers could do: Stop adding to the nation’s debt, which currently stands at a record $22.7 trillion. Almost $3 trillion of that – $2.9 trillion, to be exact – has been added since Trump became president in 2017.
“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,” Powell said. “A more sustainable federal budget could also support the economy’s growth over the long term.”