US Fed says coronavirus causing disruptions, widespread concern

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Two former top staffers at the US Federal Reserve have joined in urging the Fed to say explicitly what it will do if interest rates hit zero again.
National Institute of Allergy and Infectious Diseases director Tony Fauci (left) speaks to US President Donald Trump during a tour of the National Institutes of Health's Vaccine Research Centre. PHOTO: AFP

WASHINGTON (AFP) - The coronavirus outbreak already has disrupted travel and access to goods for US industry, and businesses nationwide sounded the warning that things could get worse, the Federal Reserve said on Wednesday (March 4).

While activity in the world's largest economy continued to grow at a modest to moderate pace in recent weeks, the outlook was becoming more uncertain, according to the Fed's beige book survey.

The report contains dozens of mentions of the virus, which said "producers feared further disruptions in the coming weeks."

Painting a picture of widespread and growing impact, the report underscores the Fed's decision Tuesday to make an emergency interest rate cut to boost confidence and shore up the economy.

"The coronavirus has entered the list of concerns, which still includes tariffs and tight labor markets," according to the Philadelphia Federal Reserve Bank.

And in Chicago, many manufacturers "expected a larger effect if the disruptions continued much longer."

Meanwhile, "local customers have been avoiding some of Philadelphia's Asian restaurants and shops, as unfounded fears spread," the report said.

Amid rising concerns about the virus and the damage to the global economy, the Fed's policy-setting committee on Tuesday slashed its key interest rate by a half point to a range of 1 per cent to 1.25 per cent - the first inter-meeting cut since late 2008 at the height of the global financial crisis.

Fed Chair Jerome Powell said the move was aimed "to help the US economy keep strong in the face of new risks to the economic outlook."

But most investors expect the Fed to cut the benchmark borrowing rate again at the March 17-18 policy meeting to stem the economic uncertainty.

The epidemic deflated the optimism felt after President Donald Trump signed the Phase One deal with China in January, calling a truce in the trade hostilities between the two economic powers, but leaving many tariffs in place.

Transportation, tourism and manufacturing all reported impacts from the virus, as did the energy industry, since the outbreak has driven down oil prices.

The Richmond Fed noted that "several ports saw an increase in blank sailings - that is shippers cancelling ports of call - particularly from China."

Meanwhile, farmers in the Chicago region "expressed frustration that Chinese purchases of US agricultural goods had not yet materialised following the announcement of the Phase One trade deal and were concerned that the coronavirus outbreak would be used as an excuse for missing future trade targets."

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