Federal Reserve officials saw risks to the U.S. economy fading before the coronavirus outbreak caused severe economic disruption in China, according to minutes from their January meeting released Wednesday.
Members of the Federal Open Markets Committee (FOMC), which sets Fed interest rates, expressed confidence in the country’s ability to stretch a record run of economic growth and job gains well into 2020 at their last meeting, held Jan. 28 to 29. The Fed kept interest rates unchanged after the meeting, which followed a raft of strong economic data to close out 2019.
Fed officials said a reduction in trade-related uncertainty after the passage of President Trump’s revised North American trade deal and signing of a preliminary pact with China helped settle concerns that stifled business investment throughout 2019. Officials also expected consumer spending, a key driver of economic growth, to “remain on a firm footing, supported by strong labor market conditions, rising incomes, and healthy household balance sheets.”
Even so, FOMC members agreed that the “threat of the coronavirus, in addition to its human toll, had emerged as a new risk to the global growth outlook,” which Fed Chairman Jerome Powell echoed in his press conference following the meeting.
“There is likely to be some disruption to activity in China and possibly globally based on the spread of the virus today and the travel restrictions and business closures that have already been imposed,” Powell told reporters at the time.
In the three weeks since Powell’s remarks, the number of confirmed coronavirus cases rose from 6,000 to more than 75,000 and the death toll rose from 132 to at least 2,014. Major U.S. airlines have also suspended service to China and businesses around the world are expected to suffer from store closures, idled factories, quarantines and other efforts to contain the virus.
The size of China’s economy, the scale of the coronavirus’s disruption, and concerns about the accuracy of Chinese government reports have prompted concerns of potential blowback for the U.S. economy. But the coronavirus was far from the only potential threat on the Fed’s radar in January.
Several Fed officials cited concerns that fading trade tensions between the U.S. and China could reemerge, or that a simmering conflict with the European Union could negate the soothing benefit of Trump’s trade deals. Others expressed fears that excessive levels of corporate debt and record-breaking equity prices could “amplify an adverse shock to the economy.”