Dallas Fed chief: No rate cut yet

Central bank eyeing virus’ impact on the global economy

Federal Reserve Bank of Dallas President Robert Kaplan said Tuesday that it is still too soon to consider cutting interest rates as a result of the coronavirus outbreak that threatens to slow the global economy.

Speaking Tuesday with the Houston Chronicle editorial board, Kaplan said the Fed is carefully watching infection rates of the virus, which has killed more than 1,000 in China and infected more than 43,000 in Asia. However, the bank president said it is too early for the Fed to alter its benchmark interest rate as a result.

“It’s way too soon,” said Kaplan, a voting member of the Federal Open Market Committee. “I would have to see some evidence or persistence for me to start thinking it

should have some effect on monetary policy.”

The Fed cut its benchmark, known as the federal funds rate, three times in 2019, but left rates unchanged — between 1.5 and 1.75 percent — at the last meeting in January.

Kaplan said that he expects the pandemic to affect economic growth across the globe — certainly in China, and to some extent in the United States, he said — for at least the first quarter. But

unless infection rates begin to accelerate in the coming months, he said, the risk of the coronavirus to the global economy should be temporary and contained to the first half of the year.

Kaplan said that for risks that are transitory, limited to a quarter or two, the Fed “should not be factoring that into monetary policy.” He added, “We’re tracking this issue very closely.”

Kaplan’s comments were largely in line with Fed Chairman Jerome Powell’s comments Tuesday morning to the House Financial Services Committee. Powell

told lawmakers that the Fed is carefully watching the outbreak and that it’s too soon to determine whether the pandemic will change the central bank’s policy decisions. President Donald Trump, who has long criticized the Fed for raising rates, tweeted Tuesday regarding the chairman’s remarks that “Fed Rate is too high.”

While the Fed is monitoring the impact to the U.S. economy, local businesses say fears of the coronavirus have slowed the local economy. Though there are no confirmed cases in Houston or Texas, local businesses, from energy companies, to travel agencies, to restaurants are feeling the impact of reduced consumer spending and slumping oil prices. Still, local economists said Houston is unlikely to be hurt in the medium or longer term by the outbreak, so long as the coronavirus does not continue to worsen.

Fed policy makers will meet again on March 17-18 to deliberate on rates.