Fed Flags Coronavirus as Risk to Economy - Is a Rate Cut Coming?

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It said it before, only not as many people were paying attention.

Speaking after last week's Federal Open Market Committee in Washington, Fed Chairman Jerome Powell told reporters that he and other Fed officials were keeping a weary eye on developments overseas, particularly the spread of the coronavirus and its impact on global economic growth.

While the discussion was tangential to the broader backdrop of how and why the FOMC opted to hold rates steady at the conclusion of its two-day meeting, the fact that the Fed was - and is - monitoring the spread of the coronavirus and its impact on the global economy and markets was certainly part of the dialogue.

That was reinforced on Friday after the Fed 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 warned 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.” 

U.S. companies have already 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.

While there are no imminent signs of a rate cut or other policy measures to offset slowing growth, the fact that the Fed is keeping a watchful eye on developments speaks to the speed and severity of the health crisis, analysts say.

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