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Fed’s Clarida says U.S. economy is strong, still too soon to judge virus risk

WASHINGTON (Reuters) – The U.S. economy is showing no signs of losing steam, U.S Federal Reserve Vice Chair Richard Clarida said on Thursday, showing little alarm about the potential of the coronavirus outbreak to alter the central bank’s interest rate policy.

“The fundamentals in the U.S. are strong: sustained growth, strongest labor market in 50 years, price stability with inflation close to our goal,” Clarida said in an interview with CNBC. “It’s a good picture.”

Economic data on Thursday showed factory activity in the U.S. mid-Atlantic region expanded more than expected in February, with a closely watched business index from the Philadelphia Federal Reserve notching its highest level in three years.

Federal Reserve officials in recent weeks have said that it is too early to tell what economic impact the coronavirus outbreak, overwhelmingly centered in China, will have on the U.S. economy, but have also appeared cautiously optimistic that any effects will be temporary.

The risks of economic exposure center on a reduction in global growth as well as fewer U.S. exports to China and U.S. companies having their supply chains disrupted. Earlier this week, Apple Inc <AAPL.O> issued a revenue warning due to the disruption the epidemic is causing to its supply chain.

China, the world’s second-largest economy, is still struggling to get its manufacturing sector back up and running after imposing severe travel restrictions to contain the flu-like virus.

The U.S. central bank lowered borrowing costs three times in 2019 but has indicated it expects to keep interest rates unchanged this year unless there is a significant change in the U.S. economic outlook.

“We are monitoring it (the virus and its impact) because China’s a huge part of the global economy,” Clarida said, but noted that they wouldn’t know how much it has reduced first-quarter growth there until figures are published in April.

Clarida also said that the recent reductions in trade tensions between the U.S. and China, along with the signing of a new trade pact between the United States, Mexico and Canada and a more orderly resolution to Brexit, could help bolster U.S. business investment, which has been struggling for months.

“There’s no doubt there’s been a decline in trade policy uncertainty…to the extent that was a factor holding back investment, that should be a positive this year,” Clarida said.

(Reporting by Lindsay Dunsmuir; Editing by Edmund Blair and Nick Macfie)

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