Mar 5, 2020 - Economy & Business

What the Fed has learned about the coronavirus outbreak

Illustration: Eniola Odetunde/Axios

The COVID-19 outbreak began weighing on U.S. businesses even before the virus had really begun its spread in the U.S., the Fed's latest beige book shows.

Why it matters: The extent of the outbreak can't yet be quantified, but the report, a collection of anecdotes from the central bank’s business contacts around the country, suggests U.S. firms could be in for a significant slowdown in March.

  • The reporting period for the beige book ended on Feb. 24, two days before the first U.S. case of unknown origin, in which an American was affected without visiting the virus' epicenter or being in contact with a person who had.

What happened: The Fed's report contained 48 mentions of the term "coronavirus," and while the report characterized the U.S. economy as growing at a "modest to moderate pace," it also noted the St. Louis and Kansas City districts, which include 12 Midwestern and Southern states, reported no growth during this period.

What it said: "Consumer spending generally picked up, but growth was uneven across the nation."

  • "Overall, growth in tourism was flat to modest."
  • "There were indications that the coronavirus was negatively impacting travel and tourism in the U.S."
  • "Manufacturing activity expanded in most parts of the country; however, some supply chain delays were reported as a result of the coronavirus and several Districts said that producers feared further disruptions in the coming weeks."

The big picture: The Fed took the highly unusual step of cutting U.S. interest rates by 50 basis points Tuesday in order to soothe markets, but many economists fear the virus could send the country (and potentially the world) into a recession this year.

The bottom line: If quickly contained, the virus' economic impact would be minimal. Fiscal and monetary authorities around the globe are joining together to reduce the virus's impact, but if its spread continues there is limited action policymakers can take.

Go deeper:

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Market overwhelmingly expects rate cut next month

Data: CME Group; Chart: Naema Ahmed/Axios

In one week, futures traders have gone from seeing virtually no chance of a rate cut at the Fed's next policy meeting to a more than three-quarters likelihood.

Why it matters: Economists aren't sure a rate cut would be effective at offsetting the damage from the coronavirus outbreak, and would put the Fed in a weaker position to bolster the economy should the U.S. fall into a recession.

Fed says it will help business-funding market amid coronavirus outbreak

Jerome Powell. Photo: Mark Makela/Getty Images

The Federal Reserve said Tuesday it would intervene in a key market used by cash-strapped businesses for the first time since the financial crisis — a move intended to help corporations hurt by the coronavirus outbreak.

Why it matters: This market froze up in recent weeks, limiting businesses' ability to borrow at a time when the halt in economic activity is weighing on American corporations. It's the latest in a series of moves by the Fed to step in and ease that pain.

Go deeperArrowUpdated Mar 18, 2020 - Economy & Business

Goldman Sachs expects a full percentage point of rate cuts from the Fed

Fed Chairman Jerome Powell. Photo: Sarah Silbiger/Getty Images

Fed chair Jerome Powell's statement on Friday afternoon that the U.S. central bank was "closely monitoring developments" and would "act as appropriate to support the economy" has eliminated any doubt that the Fed will cut U.S. interest rates at its meeting on March 17–18.

What we're hearing: "A Fed cut in March appears nearly certain," analysts at Goldman Sachs said in a late Sunday note to clients.