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Fed’s Clarida says ‘still too soon to even speculate’ about impact of coronavirus

Disease outbreak likely to hit Chinese economy in first quarter, and disruption could spill over to rest of global economy

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By Greg Robb, MarketWatch

Fed Vice Chair Richard Clarida said Tuesday the economy is in a good place.

The No.2 official at the U.S. central bank said Tuesday it is way too early to discuss whether the outbreak of the corona virus will lead to easing of Federal Reserve monetary policy.

The COVID-19 outbreak will have a noticeable impact on Chinese economic growth, at least in the first quarter, and this could spill over to the rest of the global economy, said Richard Clarida, the Fed’s vice chairman, in a speech to the National Association for Business Economics.

“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,” he said.

For now, the U.S. economy remains in a “good place,” with a strong labor market and moderate economic activity, Clarida said.

The Fed cut interest rates three times last year, bringing the benchmark rate down to a range of 1.5%-1.75%. Since the last move in October, officials have been signaling an on-hold policy stance, unless there is such a material change in the outlook.

Many economists think the Fed will ultimately be forced to cut rates again, perhaps in April.

Read: Spread of coronavirus lifts odds for Fed rate cut, as inaction would be ‘tone-deaf’

But Fed officials don’t want to be seen as making any quick decision.

Cleveland Fed President Loretta Mester on Monday also said that a “wait-and-see” stance is best.

Must read: Fed’s Mester sees coronavirus as a risk, but doesn’t support additional rate cuts

Carl Tannenbaum, chief economist at Northern Trust, said he was surprised by the tone of Fed officials over the last two days.

He said he thought they would have shown more openness to easing monetary policy.

Ian Shepherdson, chief economist at Pantheon Economics, said Fed won’t pull the trigger on another interest rate cut unless the steep market sell-off continues unabated over the next few days.

The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.94%   fell 879 points Tuesday, which follows a 1,000-point drop a day earlier. It was the worst 2-day point slide in history.

The yield on the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +1.39%   fell to an all-time low of 1.31%.

“Watching very carefully seems to be the mantra of the moment. I don’t think they are going to do anything yet, but I tell you if we have a few more days like yesterday, they probably would,” Shepherdson said.

In an interview on CNBC, White House economic adviser Larry Kudlow nudged the Fed to cut interest rates further.

“I have said I wouldn’t mind seeing my friends at the Fed be a little bolder in their target rate and their balance sheet. I said that before the virus,” Kudlow said.

In his remarks, Clarida repeated a familiar Fed observation that its policy was not on a “pre-set course.”

Decisions will be made on a “meeting-by-meeting basis,” he said.

“Of course, if developments emerge that, in the future, trigger a material reassessment of our outlook, we will respond accordingly,” he said.

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Greg Robb is a senior reporter for MarketWatch in Washington. Follow him on Twitter @grobb2000.

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