Fed: Recession less likely but coronavirus fallout a new risk

This article is more than 12 months old

Feb 10, 2020 06:00 am

WASHINGTON: A "moderately" expanding US economy was slowed last year by a manufacturing slump and weak global growth, but key risks have receded and the likelihood of recession has declined, the US Federal Reserve said in its report to the US Congress.

"Downside risks to the US 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 stabilising, and financial conditions eased," the Fed said on Friday, noting the US job market and consumer spending remained strong. "The likelihood of a recession occurring over the next year has fallen noticeably in recent months."

Among the risks the Fed did note: The fallout from the outbreak of coronavirus in China, "elevated" asset values and near record levels of low-grade corporate debt that the Fed fears could become a problem in an economic downturn.

Concerns about the virus and the disruption to Chinese economic growth sent stock markets lower on Friday, despite a strong US jobs report showing the economy added 225,000 jobs last month.

While a White House official on Friday said the likely impact on the US will be "minimal", the disease has introduced an unexpected and unpredictable problem into an economic outlook that the Fed felt was starting to improve after a turbulent year.

Overall, it said, risks to a more than decade long US recovery seemed to be easing after its three interest rate cuts in 2019 and evidence that a global dip in trade and manufacturing "appears to be at an end". - REUTERS