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Effects of coronavirus on the economy will be short-lived

US, WASHINGTON (NEWS OBSERVATORY) — A coronavirus outbreak is likely to have a short-term effect on the US economy, and GDP growth rates will be limited to a few tenths of a percentage point, said Charles Evans, head of the Federal Reserve Bank (FRB) on Tuesday.

“This is expected to have a relatively short-term impact on US economic activity,” Evans said in a speech at the University of Illinois.

A few hours earlier, the US Federal Reserve suddenly lowered the rate by 50 basis points, to 1.00-1.25%.

Charles Evans Head of the Federal Reserve Bank of Chicago in Mexico City
File Reuters

According to Evans, lowering the rate can support the confidence of businesses and households, as well as protect against the economic consequences of the rapidly spreading coronavirus epidemic.

“I am comfortable with where we are,” Evans said of the current rate level, adding that the risks of excessive inflation are small, even if rates remain at that level “for a substantial period.”

Meanwhile, Cleveland Fed chief Loretta Mester said in an interview with CNBC that the Fed’s decision to cut rates was not triggered by a market crash last week, but this fact was taken into account.

“The risks surrounding the forecast have grown substantially. There is still a lot of uncertainty about the trajectory of the virus and its consequences, ”Mester said. “This (rate cut) was actually a response to the economy and the forecast and the risks around the forecast.”

Earlier, Mester, speaking in London, noted that the outbreak of coronavirus could put pressure on the US economy in the first half of the year.

Like Evans, Mester said rate cuts could improve confidence in the economy, as well as helping households and companies with debt.

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