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Fed's Powell warns of economic risks of coronavirus amid Trump's attacks

US FEDERAL RESERVE (ADDS VIDEO) | 11 de febrero de 2020

By Alfonso Fernandez

Washington, Feb 11 (efe-epa).- US Federal Reserve Chairman Jerome Powell on Tuesday acknowledged that the coronavirus outbreak could negatively affect the Chinese and global economies, even as President Donald Trump lambasted the central bank for not dropping US interest rates.

"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 said in a prepared speech during his semi-annual appearance before Congress.

Along those lines, he said that it is "too early to say" what the effects of the coronavirus will be on the US economy and whether or not they will be "persistent" and/or "material."

Powell said the threat from the coronavirus has appeared just as trade uncertainties have been reduced, although the US economy appears to remain "resilient" and Fed policy is well positioned after a series of rate cuts in 2019.

"As long as incoming information about the economy remains broadly consistent with this outlook, the current stance of monetary policy will likely remain appropriate," Powell said, although he added that such low interest rates on the part of the Fed and other central banks around the world might present a problem.

Meanwhile, Chinese health authorities reported on Tuesday that 1,016 people have died as a result of the coronavirus, which causes serious - and often fatal - pneumonia in a small percentage of those infected.

The first recognized cases of the virus were diagnosed in the central Chinese city of Wuhan, which has 11 million people. So far, 42,638 people in the Asian giant have been diagnosed with the disease.

To date, all of the fatalities except for two - one in The Philippines and one in Hong Kong - have occurred in continental China and, although about 20 countries presently have detected cases of Wuhan pneumonia, 99 percent of those infected have been in China.

To deal with the outbreak, China, the world's second largest economy after the US and a global supply chain center, has implemented severely restrictive measures on internal travel and many factories have halted or slowed their production activities.

At its first meeting of this year, in January, the Fed left US interest rates at the prevailing level between 1.5 percent and 1.75 percent.

Powell warned about the scanty maneuvering room for monetary policy with interest rates as such low levels, saying that "This low interest rate environment may limit the ability of central banks to reduce policy interest rates enough to support the economy during a downturn."

The US budget deficit shot up by 26 percent during Fiscal Year 2019 to almost a trillion dollars - $984 billion, to be more precise - the highest figure in seven years, due to the aggressive cutting of interest rates pushed by Trump and slower than expected economic growth.

In an unusual move, the US president commented in real time about Powell's appearance before House lawmakers, once again criticizing the Fed's monetary policy after on numerous prior occasions urging the US central bank to lower interest rates, thus making money less expensive to borrow and, theoretically, boosting US growth.

"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. Germany & other countries get paid to borrow money. We are more prime, but Fed Rate is too high, Dollar tough on exports," said Trump on Twitter.

Shortly after posting that tweet, however, the stock market began moving up and the Dow Jones returned to positive territory on the day.

The Fed's next monthly meeting is scheduled for March 17-18.

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