MNI POLICY: Fed's Mester: Coronavirus Clouds The Outlook

--Patient Policy Remains Appropriate In US Economy Performing Well

By Evan Ryser

     WASHINGTON (MNI) - Cleveland Fed President Loretta Mester said Monday that

while the coronavirus is clouding the outlook, the current U.S. monetary policy

stance remains appropriate. 

     "There are risks to the outlook, including the recent emergence of the

coronavirus in Wuhan, China," Mester said according to prepared remarks at the

annual NABE conference. "But viewed through the lens of the Fed's statutory

goals of maximum employment and price stability, the economy has been performing

well and I expect that to continue."

     The coronavirus is exacting a heavy human toll, clouding the near-term

outlook for China, with potential spillovers to the rest of the world. At this

point, she said, it is difficult to assess the magnitude of the economic

effects, but this new source of uncertainty is something worth carefully

monitoring. 

     "I've incorporated it as a downside risk to my modal forecast, which calls

for growth to continue at trend, slightly slower than the pace of last year,

with continued healthy consumption growth and some pickup in investment

spending."

     The damage to the global economy could be larger than under the past SARS

outbreak because China's economy has grown in size, but the country also has

more resources to tackle the challenge, Mester said. "This might mean a larger

negative impact on growth in China in the near term but perhaps a less

protracted one."

     While the Fed has been undershooting its 2% objective for some time, Mester

said she would not be in favor of an additional move to spur a faster return to

the goal. "In my view, doing so would raise the risk of generating imbalances

that would threaten the expansion and undermine our employment goal."

     "My current view is that monetary policy is well calibrated to support our

dual mandate goals, and a patient approach to policy changes is appropriate

unless there is a material change to the outlook," Mester said.

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

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