Virus Outbreak Adds New Worry To Federal Reserve Meeting

The US central bank opened its first policy meeting of 2020 on Tuesday amid growing concerns about a virus outbreak that could slow Chinese growth.

The Federal Reserve is expected to make no change in the key interest rate used for American credit cards, mortgages and savings accounts, with officials having made clear it will take a big change to the outlook to prompt another move.

But the spreading coronavirus, with its rising death toll and impact on travel and business, has reignited fears that had begun to recede.

"The outbreak of the coronavirus comes at a fragile time for the global economy, just as markets were convinced that a global upturn was taking hold," Kathy Bostjancic, chief US financial economist at Oxford Economics, told AFP.

She, along with other economists, expects Fed Chairman Jerome Powell to mention the virus and say central bankers are keeping a watch for economic impact in his press conference following the policy decision Wednesday.

The Fed cut the benchmark interest rate three times last year after President Donald Trump's multi-pronged trade war disrupted the global economy and contributed to a recession in US manufacturing, creating ripples through the US and global economies.

The frayed nerves on both sides of the Pacific had begun to ease after Trump last month called a truce with China -- although most of the punitive tariffs remain in place -- and trade relations within North America have been resolved following the signing of a new continental pact.

But with the rapid spread of the respiratory illness, which has sickened thousands and killed over 100 people in China along with shutting down travel, auto plants and a Disney theme park, the Chinese economy could take a hit with aftershocks that spread to global markets.

The SARS outbreak in China in 2003 only temporarily curtailed growth and investment, but that was at a time when the economy was booming.

Now the global economy is struggling with depressed trade, Brexit and overall doldrums, which means any new danger on the horizon will make policymakers snap to attention.

The Fed's policy-setting Federal Open Market Committee (FOMC) has made clear in its recent statements that it will keep watch on "global developments"

And the media coverage ensures Powell will be asked for his assessment of the risk to the economic forecast, after signaling that the central bank is only likely to move if there is a "material" change to the outlook.

Economist Diane Swonk of Grant Thornton told AFP the Fed "has to acknowledge risks, but only as part of the press conference."

She said it remains "too soon to act, but (the) Fed needs to show that it is awake at the wheel."