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Fed Warns Coronavirus Is Risk to Economic Outlook

The Federal Reserve warns that 'spillovers' from the coronavirus outbreak are posing a fresh 'risk' to the global and U.S. economic outlooks.

The Federal Reserve has warned that "spillovers" from the coronavirus outbreak are posing a fresh "risk" to both the global and U.S. economic outlook.

In its monetary report to Congress, the central bank noted that "... possible spillovers from the effects of the coronavirus in China have presented a new risk to the outlook.”

It added that the recent emergence of the coronavirus “... could lead to disruptions in China that spill over to the rest of the global economy.”

The Fed opted to leave benchmark interest rates unchanged, as expected, at the conclusion of its two-day meeting last Wednesday as officials continue to monitor for signs that last year's interest rate cuts are beginning to have an effect.

However, in a press briefing following the rate announcement, Fed Chairman Jerome Powell said he and other Fed officials are keeping a wary eye on developments overseas, particularly the spread of the coronavirus and its impact on global economic growth.

U.S. companies already have begun tempering their outlooks, not only due to expected declines in demand and corresponding sales within China, but also due to supply chain disruptions that are expected to negatively impact growth well beyond China’s borders.

For its part, economists at Citigroup warned on Friday that the effect of the virus "will likely be worse than SARS for China and globally.” 

The bank also noted that the virus “… has spread much faster than SARS, and the policy responses worldwide to disrupt travel to-and from China, and disrupt movements within mainland China, have been much more draconian, compounding the demand shock from the large scale behavioural risk avoidance that was so apparent during SARS.”

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