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The coronavirus outbreak muddied the outlook for US economy and could weigh on growth in the first half of this year, Cleveland Federal Reserve Bank President Loretta Mester said in London Tuesday.

Key notes

  • Says it’s hard to know how large and persistent the economic impact of coronavirus will be.
  • Says coronavirus will weigh on u.s. economic growth in the first half of 2020.
  • Says it’s hard to know how large and persistent the economic impact of coronavirus will be.
  • Says virus could lead to a pullback in spending by households and businesses.
  • Says supply shock from virus could evolve into a demand shock.
  • Says Fed’s emergency rate cut could boost confidence and help indebted households and businesses.

Market implications

The Federal Reserve to cut interest rates today in an emergency meeting by 50 basis points. We have seen unprecedented market volatility with the US 10-year yields falling to below 1% for the first time in history. The Fed could be doing more, even as soon as 18th March meeting, denting the US dollar in the knee jerk reaction. However, the greenback could be expected to attract a safe haven flow as a coordinated effort from central banks will likely see additional action from other central banks.