Fed chairman warns of economic damage from coronavirus

Federal Reserve Chairman Jerome Powell told lawmakers Tuesday that the central bank is on watch for potential economic damage created by the lethal coronavirus and the rush to contain it.

Powell said in testimony before the House Financial Services Committee that the Fed “is closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy,” according to prepared testimony released Tuesday morning.

Powell’s warning mirrors other comments he made on Jan. 29 to reporters after the Fed kept interest rates steady, signaling optimism in the economy.

The Fed chief warned then while “it’s too early to say” how much damage the illness will unleash, “there will clearly be implications, at least in the near term, for Chinese output, and I guess for some of their closest neighbors, and we’ll just have to see what the effect is globally.”

Since then, the virus has spread to more than 43,000 people across Asia after originating in central China, with at least 12 confirmed cases in the U.S. and more than dozen across Europe, according to The New York Times. At least 1,018 people have died from the respiratory virus, all but two in China.

The scramble to contain the virus and prevent a global pandemic has derailed the Chinese economy. Quarantines and travel bans within China have frozen much of the country’s domestic economic activity and forced international businesses to close Chinese stores, factories and supply lines.

Close businesses and trade ties between the U.S. and China, plus a growing reliance on sales to a growing Chinese middle class, make a prolonged economic slump in China a likely drag on the American economy.

United Airlines, American Airlines and Delta Air Lines have also suspended all flights to and from China until at least late March, and the federal government has warned Americans to avoid travel to China.

“We’ve witnessed economic spillovers not simply because of a public health problem, but because of a governance problem that delayed reporting of the disease,” said Rep. Patrick McHenry (N.C.), the Financial Services panel’s top Republican.

“The nature of China’s regime may not fit neatly into the Fed’s risk assessments,” he added, “but the risks are real, and they should be reflected appropriately in the Fed’s deliberations.”

Updated at 10:47 a.m.