Yahoo Finance Fed’s Kashkari: Virus Could Deliver Negative ‘Shock’ That Could Force Fed to Lower Rates
Several Federal Open Market Committee (FOMC) members have been making the rounds recently, giving their takes on current monetary policy and the potential impact of the coronavirus on the U.S. economy.
FOMC Mester: Coronavirus Could Drag on U.S. Economy
On February 14, Cleveland Fed President Loretta Mester said the coronavirus epidemic, which has killed thousands and sickened tens of thousands in China, could be a drag on the U.S. economy this quarter.
“I expect that, certainly in China and perhaps in Asia, the first quarter and it remains to be seen by how much and for how long that will persist,” Mester told Bloomberg Television. “But in general I am seeing that as a risk to my forecast – I haven’t marked down my forecast.”
The data show the U.S. economy is in a “good place,” Mester said, using a favorite phrase of Fed policymakers.
Several Fed officials, including Chair Jerome Powell, have also said they expect to see some impact on the U.S. economy from the coronavirus.
“They have not, however, signaled expectations that the impact would lead to a “material change” to the outlook, the bar they have set for any further adjustments to rates.
FOMC Kaplan: US Interest Rates ‘Roughly Appropriate”
Dallas Federal Reserve Bank President Robert Kaplan on February 18 repeated his view that the current setting of U.S. interest rates is “roughly appropriate” through the end of the year, even as he noted risks from the flu-like epidemic that has brought parts of China to a halt.
Predicting consumer-led U.S. GDP growth of 2% to 2.25% in 2020, a drop in U.S. unemployment to 3.5% from 3.6%, and a rise in inflation toward the Fed’s goal of 2%, Kaplan sounded fairly upbeat in an essay released Tuesday morning laying out his assessments, Reuters said.
“Of course, this outlook is clouded by the impact of the coronavirus originating in Wuhan, China,” Kaplan said.
Economists at the Dallas Fed are looking at different possible scenarios for the epidemic’s effect on U.S. and global growth, Kaplan said, but “it is still too soon to predict with confidence the ultimate impact” on the economy.
FOMC Kashkari: ‘Shocks could hit U.S. economy and Call for Lower Rates’
The Federal Reserve is likely to keep interest rates where they are until mid-2020 but may need to cut them, Minneapolis Fed Bank President Neel Kashkari said on Wednesday, pointing to the coronavirus in China as one potential risk to the U.S. economy, Reuters said.
“If I were to guess, I’d guess we’re probably going to sit here for the next three months, next six months, maybe longer,” Kashkari told a symposium in Mankato, Minnesota.
“But if I were to guess what the next move would be, my best guess is the next would be down rather than up, because we are pretty close to neutral today, and there are any number of shocks around the global economy that could hit the U.S. economy and call for lower rates.”
Kashkari said the impact from the virus could deliver a negative “shock” that could force the Fed to lower rates from their current target range of 1.5% to 1.75%.
This article was originally posted on FX Empire
