MNI POLCY: Williams: Virus Poses Evolving Risks to Outlook

-- Says Fed Will 'Act as Appropriate' to Support Economy

By Evan Ryser

     NEW YORK (MNI) - The Federal Reserve is monitoring the evolving risk of the

coronavirus to the U.S. economic outlook and "will respond as appropriate," New

York Fed President John Williams said Thursday. 

     In his first public remarks since the Fed's surprise intermeeting cut

Tuesday, the New York Fed head said the "strong" 50bps cut on Tuesday "provides

meaningful support to the economy and will help sustain the economic expansion."

     The outlook, however, is "evolving and highly uncertain," Williams said,

and in "the weeks and months ahead, we will continue to closely monitor

developments and their implications for the economic outlook."

     Williams, using language that central bank leaders have used to signal

willingness to use monetary policy to support growth, said: "We will use our

tools and act as appropriate to support the economy."

     While the fundamentals of the United States economy "remain strong," he

said, "during the past month the outbreak and subsequent spread of the

coronavirus has brought with it new risks to the economic outlook."

     The virus "will have near-term effects on the global economy," he said, and

these repercussions have been especially strong in the hardest-hit countries,

including China, South Korea, Japan, Italy, and Iran.

     --DOMESTIC ECONOMY

     The Fed is hearing reports that some businesses in the United States are

being affected by supply disruptions and weakening demand, Williams said, with

particular concerns around the tourism and travel sectors. 

     The coronavirus, like other disease outbreaks, requires a multifaceted

approach, and governments could need to provide targeted relief to affected

industries and workers through fiscal measures, he said. 

     While public health workers have the leading role, central banks have an

important role to play in addressing the economic effects of the coronavirus,

ensuring that financial markets function effectively, and providing support to

the economy can help manage near-term risks to the economy in a highly uncertain

time, Williams said to the Foreign Policy Association in New York City. 

     --ALIGNMENT

     The Fed is coordinating with counterparts around the world, Williams said,

and the G7 phone call and ensuing statement released Tuesday "are clear

indications of the close alignment at the international level."

     Williams, commenting on the state of money markets where demand for

temporary liquidity increased this week, said the New York Fed "will ensure that

the supply of reserves in the banking system remains ample," and "[w]e are

monitoring conditions in money markets closely."

     "We remain flexible and ready to make adjustments to our operations as

needed to ensure that monetary policy is effectively implemented and transmitted

to financial markets and the broader economy."

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

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