Federal Reserve officials see the coronavirus as a significant threat to growth, but the extent of that is not known yet, Vice Chairman Richard Clarida said Tuesday.
Stocks have sold off aggressively on fear that the COVID-9 virus will slow the Chinese economy, which could have ripple effects across the global supply chain. Markets widely expect the Fed to cut interest rates in response.
However, Clarida said the central bank is comfortable with policy as it is now while officials monitor the disease’s impact.
“The disruption there could spill over to the rest of the global economy,” he said in remarks delivered in Washington, D.C. “But it is still too soon to even speculate about either the size or the persistence of these effects, or whether they will lead to a material change in the outlook.”
Should that outlook change, he said, “we will respond accordingly.”
Clarida pointed out that inflation remains muted.
If the bottleneck in China should lead to a slowdown in demand and lower prices, the Fed could ease in that situation.
However, Clarida reiterated the stance from his fellow Fed officials that they don’t see a cut in rates given current broader conditions.
“As long as incoming information about the economy remains broadly consistent with this outlook, the current stance of monetary policy likely will remain appropriate,” he said.