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In its latest monetary policy report to Congress, the central bank said the odds of the U.S. sliding into a recession have shrunk considerably, even though a manufacturing slump and global growth weighed on the outlook last year.
“Downside risks to the U.S. outlook seem to have receded in the latter part of the year, as the conflicts over trade policy diminished somewhat, economic growth abroad showed signs of stabilizing, and financial conditions eased,” the Fed said, noting both the labor market and consumer spending have remained strong. “The likelihood of a recession occurring over the next year has fallen noticeably in recent months.”
Still, it did identify the rapidly spreading coronavirus — more than 600 people have died from the mysterious illness, while Chinese officials confirmed more than 31,000 cases — had emerged as a new risk to the global economy. Multiple companies and countries are limiting travel to and from mainland China, evacuating citizens and scaling back operations, raising concerns about the health of the world's second-largest economy.
“Possible spillovers from the effects of the coronavirus in China have presented a new risk to the outlook,” the Fed said.
During policymakers’ most recent rate-setting meeting, Fed Chairman Jerome Powell suggested the illness could disrupt activity in China, which could have a worldwide impact. But, he declined to speculate further about the situation.
"It's a very serious issue," Powell said, before adding, “We’re carefully monitoring the situation.”
Powell will testify before Congress next Tuesday and Wednesday.
The report on the state of the economy and monetary policy, which the Fed is required to submit to lawmakers twice a year, reaffirmed its wait-and-see approach to interest rates, calling it “appropriate.”
Over the past few months, the benchmark federal fund rate has sat at a range between 1.5 percent and 1.75 percent, following three modest cuts in 2019.
“The Committee judged that the prevailing stance of monetary policy was appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective,” the Fed said. “The Committee noted that it will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”