MNI POLICY: Yellen Calls Coronavirus 'Significant Concern'

--Former Fed Chair Sees A Less Dynamic American Economy

By Evan Ryser

     WASHINGTON (MNI) - Former Federal Reserve Chair Janet Yellen on Tuesday

called China's coronavirus a significant risk to the global economic outlook

this year.

     "It is a potential influence on the global economy, it seems certain to

have a significant effect, at least for a quarter or two, on Chinese growth,"

Yellen said. "China is such a significant piece of the global economy. That's

bound to have spillovers."

     "We don't know where this is going. To my mind, it is clearly a source of

uncertainty and risk to the global outlook," she said at a panel discussion at

George Washington University in Washington. It is "clearly a significant

concern."

     The epidemic may shave China's Q1 growth by as much as a full percentage

point from last quarter to 5% as knock-on effects in the crucial services

industry are amplified, clouding the outlook for full-year 2020, advisers close

to the government told MNI.

     --CONSUMER STRENGTH

     Asked about her expectations for the U.S. outlook at the Bipartisan Policy

Center event, Yellen said growth is likely to continue at potential or a little

higher at around 2% and consumers which have helped to hold up growth "are in

good shape."

     "I don't see the consumer spending that's carrying this economy based on

very weak foundations. It is based on solid growth and solid growth of income,"

Yellen noted. "I see it as sustainable."

     She expressed hope that the Fed's three rate cuts in the second half of

2019 will lead labor markets to "tighten even further."

     "In many ways, the United States is doing well," she said, adding that the

expansion is not "bubble-driven."

     --LESS DYNAMIC

     Pointing to an aging population and less immigration, Yellen said labor

force growth is "really contributing very little to potential output growth

going forward" and that low trend growth for the economy is "troubling." 

     Slower productivity growth in most developed economies is "depressing," she

added. She projects American productivity to be roughly 1.4%, "a huge concern." 

     Part of that reflects a slowdown in education attainment, sluggish

investments, a surfeit of saving, the demand for safe assets, she said, but most

importantly, the pace of technological change has declined.

     "The American economy seems less dynamic," she said, noting a slower pace

of startups.

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

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