Fed Chair Powell Warns of Possible Economic Fallout from Coronavirus


WASHINGTON — Federal Reserve Chair Jerome H. Powell will warn lawmakers on Tuesday that the coronavirus epidemic sweeping China could pose broader economic risks, even as he signals that the central bank is comfortable holding interest rates steady for now.

“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,” Mr. Powell plans to tell House Financial Services Committee members, according to a statement prepared for delivery.

The central bank chief is also set to testify before the Senate Banking Committee on Wednesday.

Mr. Powell is expected to face questions from lawmakers about what the Fed plans to do in 2020, as the economy continues to add jobs but inflation remains low. An initial trade deal with China has eased one major source of economic uncertainty, but tariffs remain on Chinese goods and tensions with other nations could reignite. And the new virus — which has killed more than 1,000 people and sickened tens of thousands — has emerged as an economic wild card.

“Some of the uncertainties around trade have diminished recently, but risks to the outlook remain,” Mr. Powell plans to say. Still, as long as incoming economic information remain in line with the Fed’s outlook, “the current stance of monetary policy will likely remain appropriate.”

The Fed’s policy rate is now set in a range of 1.5 to 1.75 percent, after officials cut it three times last year to insulate the economy against wobbling global growth and fallout from President Trump’s trade battles.

The housing market perked up as the Fed made its cuts, and the economy as a whole is growing steadily through a record 11th year of expansion.

Despite that, Mr. Powell has remained the subject of near-constant White House complaints. Mr. Trump told Fox Business Network on Monday that “we should have a lower interest rate” and said Mr. Powell “let me down. I think he’s done the wrong thing.”

The Fed operates independently of the White House but answers to Congress, which has given it the freedom to pursue its two goals — stable inflation and maximum employment — as it sees fit.

Mr. Powell has met extensively with lawmakers from both the House and the Senate, and he tends to get a comparatively welcoming reception during his visits to Capitol Hill.

A good relationship with Congress could prove essential in the next recession. Interest rates have fallen across advanced economies as the population has aged and productivity growth has slowed, which means that the Fed will likely have less room to cut borrowing costs to coax the economy back to life in future downturns.

That means “it would be important for fiscal policy to help support the economy if it weakens,” according to Mr. Powell’s remarks. He plans to tie that point to a pet topic of his: the size of the government’s debt.

“Putting the federal budget on a sustainable path when the economy is strong would help ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy during a downturn,” he will say. “A more sustainable federal budget could also support the economy’s growth over the long term.”

The budget deficit topped $1 trillion in 2019 and the Congressional Budget Office expects trillion-dollar deficits for the next several years.