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Will Virus Fears Give the Fed Pause?

Published 25/01/2020, 06:39 am
Updated 25/01/2020, 06:51 am
© Reuters.

© Reuters.

By Kim Khan

Investing.com – The Federal Reserve will host its first interest-rate-setting meeting of the year next week, with its decision and statement to come out on Jan. 29.

As it stands, the meeting looks like a foregone conclusion.

Fed funds futures are pricing in an 86.7% chance that the benchmark rate stays in the target of 1.5% to 1.75%, according to Investing.com’s Fed Rate Monitor Tool.

Still, any dovish talk would help equity markets as the desire for Fed stimulus hasn’t abated.

One reason the Federal Open Market Committee could ponder easing policy is the recent outbreak for the Wuhan coronavirus.

“The SARS virus caused a fairly sharp slowdown in growth in China 2003, shaving 2% off of GDP, with spillover effects for 37 countries,” Diane Swonk, chief economist at Grant Thornton, said in a note today.

“Now, China is much more connected to the rest of the world and has fewer ways to offset economic weakness,” Swonk added.

Today, a second case of the disease was confirmed in the United States, which sent an already tentative stock market decidedly into the red.

"San Francisco noted that international travel had weakened, due in part to the (SARS) outbreak in Asia,” the Fed said in its Beige Book report of economic activity in 2003.

“Dallas observed a decline in air travel due to the onset of the (Iraq) war and the SARS outbreak," it added.

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