Fed: ‘Great Uncertainty’ Around Impact To US Economy

Officials with the Federal Reserve don’t know yet precisely how severe the impact from the coronavirus will be, and on Monday (Feb. 24) said they didn’t want to make any quick or severe judgments just yet.

Stocks were down Monday, with the yield on the benchmark 10-year U.S. note Treasury traded near its lowest point ever, according to the Wall Street Journal.

Global investors were busy looking into safe-haven options. They lowered their expectations after Monday’s shift.

Cleveland Fed President Loretta Mester said she was comfortable thus far with the central bank’s current interest rate and was closely watching the way the coronavirus was affecting global revenues and growth.

She said it was difficult to ascertain the weight of the effects on world economies, but that she planned to closely monitor the “new source of uncertainty” that the virus had wrought. This year Mester is a rate-setting member of the Federal Open Market Committee.

In conversation with reporters, Mester said she didn’t know if the Fed needed to change its outlook based on daily financial upswings and downturns, pushing back against calls for snap decisions and saying they didn’t need to overreact to volatility in the markets. While it was important to react, they didn’t need to take just one day and extrapolate things from that.

The stock market does not solely guide the Fed, but central bankers look closely at trends in stock and bond prices, as those can affect wealth and confidence.

The coronavirus outbreak, having killed thousands and infected tens of thousands more worldwide, has also had other effects on the economy as disruptions rattled manufacturers and suppliers, many of whom relied on China where the virus broke out.

But in the U.S., financial officials are trying to keep optimistic. Minneapolis Fed President Neel Kashkari, who is another voting member at the FOMC, said it was important not to guess how the Fed would respond, adding that things were in a good place so far.