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Powell Says The Fed Is Closely Monitoring The Coronavirus Outbreak

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Federal Reserve Chairman Jerome Powell said the central bank is closely monitoring the emergence of the coronavirus in testimony before the House Financial Services Committee on Tuesday.

Powell noted in prepared remarks that some of the uncertainties around trade have diminished following the signing of the phase one U.S.-China trade deal but cautioned risks to the outlook remain.

"In particular, 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," Powell said.

However, Powell pointed out that the U.S. economy has recently appeared resilient to global headwinds, with economic activity increasing at a moderate pace over the second half of last year.

The Fed chief said the diminished uncertainty surrounding trade and signs global growth may be stabilizing led the central bank to leave interest rates unchanged at the last two monetary policy meetings.

Powell reiterated the Fed's belief that the current stance of monetary policy will likely remain appropriate as long as long as incoming information about the economy remains broadly consistent with its outlook for continued growth.

"Of course, policy is not on a preset course. If developments emerge that cause a material reassessment of our outlook, we would respond accordingly," Powell said.

Powell noted the U.S. faces some important longer-run challenges, citing lower labor force participation by individuals in their prime working years than in most other advanced economies as well as troubling labor market disparities across racial and ethnic groups and across regions of the country.

The Fed Chairman also pointed to subpar productivity growth throughout the economic expansion and argued finding ways to boost labor force participation and productivity growth should remain a national priority.

Powell also warned that the low interest rate environment may limit the ability of central banks to reduce rates enough to support the economy during a downturn.

"The current low interest rate environment also means that it would be important for fiscal policy to help support the economy if it weakens," Powell said.

"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 added.

Powell is scheduled to appear before the Senate Banking Committee on Wednesday as he continues his semi-annual testimony to Congress.

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