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Tuesday, February 11, 2020 - 13:40

MNI POLICY: Fed's Bullard: Coronavirus New Risk to Outlook


--Soft Landing Still Reasonable Forecast for U.S. Economy in 2020

WASHINGTON (MNI) - China's coronavirus outbreak adds to other risks threatening a soft landing for the U.S. economy this year, St. Louis Fed President Jim Bullard said Tuesday.

"Experience with previous viral outbreaks suggests that the effects on U.S. interest rates can be tangible and last until the outbreak is clearly contained," he said, pointing to the effects on the 10-year Treasury yield of other viral outbreaks such as SARS, swine flu, avian flu and Ebola.

In the case of swine flu, the 10-year yield fell nearly 60 bps about a month into the outbreak before rebounding. Yields fell as much as 40 bps after SARS, according to his slides.

"Whether the coronavirus outbreak in China is likely to be contained as other important viral outbreaks have been" is a factor that "could affect a soft landing" Bullard said. The full impact remains to be seen, he said, adding that China's growth "is expected to grow noticeably slower in the first quarter."

Other headwinds for the U.S. economy are how global manufacturing responds to lower trade uncertainty and how interest-sensitive U.S. sectors respond to much more accommodative monetary policy this year, Bullard said.

"The FOMC has taken actions that have changed the outlook for shorter-term U.S. interest rates considerably since November 2018, ultimately providing more accommodation to the economy. This has helped to create a reasonable prospect that the U.S. economy will achieve a soft landing in 2020," Bullard said in remarks prepared for the CFA Society of St. Louis.

The U.S.-China trade accord, U.S.-Mexico-Canada Agreement and the UK's approved plan to depart the EU could help lift the pall on global investment and slower global growth, he said.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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