Tag Archives: U.S. Federal Reserve

Fed officials turn focus to rate debate, eye on jobs, inflation

By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) -U.S. Federal Reserve officials on Monday turned their focus towards a debate over interest rate policy that is likely to intensify in coming months, with one top official saying the conditions for a rate hike could be met next year with job growth expected to continue and inflation already pushing beyond comfortable levels.

Fed Vice Chair Richard Clarida said that while the Fed remains “a ways away from considering raising interest rates,” if his current outlook for the economy proves correct then the “necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022.”

His remarks come as the Fed shifts attention towards a possible clash between its hope to drive jobs as high as possible, and its concern that inflation is already running too fast.

Inflation to date already presents “much more than a ‘moderate’ overshoot of our 2% longer-run inflation objective, and I would not consider a repeat performance next year a policy success,” Clarida said.

He said economic growth should drive the unemployment rate to 3.8% by the end of next year, and “eliminate the 4.2 million ’employment gap’ relative to” the months before the pandemic.

At that point an interest rate path similar to the one laid out by Fed officials in September would “be entirely consistent” with the Fed’s new framework for hitting its 2% inflation target and reaching “maximum employment,” Clarida said in remarks prepared for presentation at the Brookings Institution.

That rate “dot plot” showed 18 Fed officials evenly split over the need to raise rates next year, with a majority showing rates rising more steadily in 2023 and 2024.

In separate remarks St. Louis Federal Reserve bank president James Bullard repeated his outlook that the Fed will need to raise rates twice next year — with U.S. job markets already so tight it is adding to inflation through growing wage and compensation costs.

“We are going to see downward pressure on the unemployment rate and we are going to continue to see a very hot jobs market with compensation rising,” Bullard said on Fox Business Network. “We’ve got quite a bit of inflation here…we definitely want to see that come down closer to our inflation target.”

“If inflation is more persistent than we are saying right now, then I think we may have to take a little sooner action in order to keep inflation under control,” Bullard .

Two other Federal Reserve bank presidents are due to speak later in the day.

(Reporting by Howard Schneider and Ann Saphir; Editing by Mark Potter and Andrea Ricci)

‘Just give us our money’: Taliban push to unlock Afghan billions abroad

By John O’Donnell

FRANKFURT (Reuters) – Afghanistan’s Taliban government is pressing for the release of billions of dollars of central bank reserves as the drought-stricken nation faces a cash crunch, mass starvation and a new migration crisis.

Afghanistan parked billions of dollars in assets overseas with the U.S. Federal Reserve and other central banks in Europe, but that money has been frozen since the Islamist Taliban ousted the Western-backed government in August.

A spokesman for the finance ministry said the government would respect human rights, including the education of women, as he sought fresh funds on top of humanitarian aid that he said offered only “small relief”.

Under Taliban rule from 1996-2001, women were largely shut out of paid employment and education and normally had to cover their faces and be accompanied by a male relative when they left home.

“The money belongs to the Afghan nation. Just give us our own money,” ministry spokesman Ahmad Wali Haqmal told Reuters. “Freezing this money is unethical and is against all international laws and values.”

One top central bank official called on European countries including Germany to release their share of the reserves to avoid an economic collapse that could trigger mass migration towards Europe.

“The situation is desperate and the amount of cash is dwindling,” Shah Mehrabi, a board member of the Afghan Central Bank, told Reuters. “There is enough right now … to keep Afghanistan going until the end of the year.

“Europe is going to be affected most severely, if Afghanistan does not get access to this money,” said Mehrabi.

“You will have a double whammy of not being able to find bread and not being able to afford it. People will be desperate. They are going to go to Europe,” he said.

The call for assistance comes as Afghanistan faces a collapse of its fragile economy. The departure of U.S.-led forces and many international donors left the country without grants that financed three quarters of public spending.

The finance ministry said it had a daily tax take of roughly 400 million Afghanis ($4.4 million).

Although Western powers want to avert a humanitarian disaster in Afghanistan, they have refused to officially recognize the Taliban government.

Haqmal said Afghanistan would allow women an education, although not in the same classrooms as men.

Human rights, he said, would be respected but within the framework of Islamic law, which would not include gay rights.

“LGBT… That’s against our Sharia law,” he said.

Mehrabi hopes that while the United States has recently said it will not release its lion’s share of roughly $9 billion of funds, European countries might.

He said Germany held half a billion dollars of Afghan money and that it and other European countries should release those funds.

Mehrabi said that Afghanistan needed $150 million each month to “prevent imminent crisis”, keeping the local currency and prices stable, adding that any transfer could be monitored by an auditor.

“If reserves remain frozen, Afghan importers will not be able to pay for their shipments, banks will start to collapse, food will be become scarce, grocery stores will be empty,” Mehrabi said.

He said that about $431 million of central bank reserves were held with German lender Commerzbank, as well as a further roughly $94 million with Germany’s central bank, the Bundesbank.

The Bank for International Settlements, an umbrella group for global central banks in Switzerland, holds a further approximately $660 million. All three declined to comment.

The Taliban took back power in Afghanistan in August after the United States pulled out its troops, almost 20 years after the Islamists were ousted by U.S.-led forces following the Sept. 11, 2001, attacks on the United States.

(Additional reporting by Karin Strohecker in London and James MacKenzie in Islamabad; writing by John O’Donnell; Editing by Nick Macfie)

Pandemic drove online prices higher -report

By Howard Schneider

WASHINGTON (Reuters) – The rush to online shopping during the pandemic drove prices higher for goods ordered over the internet, eroding a long-standing cost advantage and possible evidence that overall inflation may become more persistent than thought, according to a new report from tech giant Adobe.

The study, analyzing a trillion retail site visits across 18 product categories matched to the closely watched U.S. Consumer Price Index that measures general inflation, found that online prices jumped 2.3% in June on an annual basis.

They had fallen an average 3.9% annually from 2014 to 2019 and began turning higher last year.

For consumers, online shopping “has been a bit of a haven. They can get different pricing,” said Vivek Pandya, lead analyst for Adobe Digital Insights. “Through the pandemic what we have seen is that is not so much the case.”

The online price of appliances, for example, jumped 2.3% in June, after declining an average of 2.6% annually from 2015 to 2019 Adobe found. Online apparel jumped 16.2% after a steady 1% annual decline in price before the pandemic.

Some prices continued falling. The cost of computers declined nearly 10% over the year, matching its average pace of decline before the pandemic. But in another key online category, electronics, the steady 9% annual drop in prices slowed dramatically, with the cost of goods falling just 2.5%

Overall, Pandya said he felt the experience of the last year, as online shopping surged in popularity and became more common for things like groceries and household staples, has made online retailers both more subject to demand and supply chain pressures in the economy, and given them less incentive to discount.

“As retailers find demand and they are against (supply chain) shortages, they are pricing at higher levels. And in some instances consumers will reckon with that and say they are getting convenience and will continue to absorb the cost,” he said.

That could be bad news for the U.S. Federal Reserve. Online retailing is regarded by some at the Fed as an important reason why inflation overall has remained low in recent years – with consumers just a glance at their phone away from finding the best price for a widening array of products.

If the pricing of online goods starts to behave more like that of goods in stores, it might make bouts of inflation more persistent – and not, as the Fed expects, only transitory.

Adobe developed its Digital Economy Index in 2014 but until now has updated it infrequently. It plans to release results monthly going forward.

(Reporting by Howard Schneider; Editing by Andrea Ricci)

Fed officials say “temporary” inflation surge may last longer than thought

By Howard Schneider

WASHINGTON (Reuters) -A period of high inflation in the United States may last longer than anticipated, two U.S. Federal Reserve officials said on Wednesday, prompting one to pull forward his views on when the central bank should start raising interest rates.

Atlanta Fed president Raphael Bostic said with growth surging to an estimated 7% this year and inflation well above the Fed’s 2% target, he now expects interest rates will need to rise in late 2022.

“Given the upside surprise in recent data points I pulled forward my projection,” Bostic said, placing him among seven Fed policymakers who at the central bank’s meeting last week projected the overnight policy rate may need to lift from the current near zero level sometime next year.

That marked a decisive shift from the end of 2020, when 12 Fed policymakers felt crisis-levels of interest rates would need to remain in place into 2024.

The difference in the meantime: Vaccines that have driven back the spread of the coronavirus, and an economic reopening that has proceeded faster, and driven inflation higher, than Fed officials anticipated.

Both Bostic and Fed Governor Michelle Bowman on Wednesday said that while they largely agree recent price increases will prove temporary, they also feel it may take longer than anticipated for them to fade.

“Temporary is going to be a little longer than we expected initially…Rather than it being two to three months it may be six to nine months,” Bostic said in an interview on National Public Radio’s Morning Edition.

TAKING SOME TIME

Prices for goods like lumber and used cars have pushed some measures of inflation to multi-year highs, with the consumer price index showing a 5% annualized increase in May, the fastest since 2008. Though some prices have begun to ease already, the higher prices have registered among elected officials, and forced the Fed to begin thinking about how to ensure prices don’t spiral too high or too fast.

Bowman in remarks to a Cleveland Federal Reserve bank conference said she agrees prices are being driven by clogged supply chains and surging demand as the economy reopens, factors that should ease.

But she put no frame around when that might happen, saying that “it could take some time,” and would need to be closely watched as the Fed sets policy.

Fed Chair Jerome Powell and other policymakers have staked their current outlook on a presumption that the surge in prices seen as the economy reopened would ease on its own, allowing the Fed to hit its 2% inflation target on average over time.

Powell told a U.S. congressional committee on Tuesday that recent high inflation readings resulted from a “perfect storm” of circumstances related to the reopening, and would abate.

How quickly that happens, however, may influence the Fed’s upcoming decisions about when to begin reducing its $120 billion in monthly bond purchases, and eventually raise interest rates.

Bostic said that “three or four months” of continued job gains should yield enough progress in the recovery of employment to consider pulling back on the bond purchases, a precursor in his view to raising rates.

(Reporting by Howard Schneider; Editing by Chizu Nomiyama and Andrea Ricci)

Explainer: What to look for in the Fed’s U.S. economic outlook

By Ann Saphir

SAN FRANCISCO (Reuters) – U.S. Federal Reserve policymakers on Wednesday will publish their first economic projections since the coronavirus pandemic set off a recession in February, estimates expected to signal a collapse in output this year and near-zero interest rates for the next few years.

They’ll also give shape to the range of views at the U.S. central bank about the expected speed of the recovery and any longer-term damage to the world’s biggest economy from a pandemic that has so far killed nearly 111,000 Americans and prompted unprecedented restrictions on commerce and movement to slow its spread.

Here is a guide to what the projections may show and what questions they may raise about the future of the U.S. economy as authorities lift those restrictions.

WHAT ARE THEY?

Every three months, each of the Fed’s 17 policymakers develops a set of multi-year forecasts for U.S. unemployment, inflation, economic growth and interest rates. The projections are published in summary form at the end of the policy-setting meeting. The Fed did not release a quarterly summary of economic projections in March, however, because of massive uncertainty about the spread of the novel coronavirus, the resulting lockdowns, and the economic fallout. Though plenty is still uncertain, one thing is clear: the projections on Wednesday will be starkly worse than the Fed’s largely favorable outlook in December. (Please see graphic )

DOES THIS HAVE ALL THOSE DOTS?

Yes. The projections’ centerpiece is the so-called dot plot, a graphic representation of where each unnamed policymaker sees interest rates in coming years. This collection of rate-setters’ individual views has also occasionally functioned as a loose policy promise about the path of rates. This is one of those times. The Fed has signaled it will keep its key overnight lending rate near zero until the recovery is well underway. The dots, which will likely show most Fed policymakers expect no change in rates through 2022, “could be seen as a soft way of reinforcing that guidance,” said Michael Feroli, chief U.S. economist at JP Morgan.

HOW DEEP, HOW LONG?

With states in various stages of reopening after weeks or more of stay-at-home orders that precipitated the recession, the Fed policymakers’ forecasts will map their sense of how quick the recovery will be.

“The Fed likely forecasts a strong rebound in growth in H2, but the level of GDP will remain well below the pre-coronavirus level until late 2021” Oxford Economics’ Kathy Bostjancic wrote. Her view was widely echoed by other economists.

The U.S. unemployment rate, which fell unexpectedly to 13.3% in May, may be projected to end this year in double digits and remaining well above healthy long-run levels next year. The Fed will likely project inflation to undershoot its 2% target for the foreseeable future, Bostjancic and others say.

Importantly, the Fed’s summary of projections reflects what policymakers see as the most likely path for the economy, which for many does not factor in a second wave of infections – a key unknown for now.

But deaths from COVID-19, the respiratory illness caused by the novel coronavirus, continue to increase in many U.S. states, and public health officials have flagged the possibility of further spread after crowded Memorial Day celebrations in parts of the country in late May and ongoing mass protests against racial inequalities since the May 25 death of George Floyd, a black man, in police custody in Minneapolis.

“The risk to our forecast, and likely the Fed’s, is skewed to the downside,” Bostjancic said.

LONG-TERM DAMAGE?

The economic projections being released on Wednesday will also offer insight into whether Fed officials see the pandemic as inflicting permanent damage on the economy. Nomura economist Lewis Alexander projects little change to the Fed’s earlier estimate that the economy can sustain about 1.9% yearly growth in the long run, along with 4.1% unemployment, though both could erode. More broadly, he said, “it is important to emphasize the significant amount of uncertainty” around the forecasts.

(Reporting by Ann Saphir; Editing by Dan Burns and Paul Simao)

What did eight weeks and $3 trillion buy the U.S. in the fight against coronavirus?

By Howard Schneider

WASHINGTON (Reuters) – Unemployment checks are flowing, $490 billion has been shipped to small businesses, and the U.S. Federal Reserve has put about $2.5 trillion and counting behind domestic and global markets.

Fears of overwhelmed hospitals and millions of U.S. deaths from the new coronavirus have diminished, if not disappeared.

Yet two months into the United States’ fight against the most severe pandemic to arise in the age of globalization, neither the health nor the economic war has been won. Many analysts fear the country has at best fought back worst-case outcomes.

For every community where case loads are declining, other hotspots arise and fester; for states like Wisconsin where bars are open and crowded, there are others such as Maryland that remain under strict limits.

There is no universal, uniform testing plan to reveal what is happening to public health in any of those communities.

Between 1,000 and 2,000 people a day continue to die from the COVID-19 disease in the United States, and between 20,000 and 25,000 are identified as infected.

If there is consensus on any point, it is that the struggle toward normal social and economic life will take much more time, effort and money than at first thought. The risks of a years-long economic Depression have risen; fact-driven officials have become increasingly sober in their outlook, and the coming weeks and coming set of choices have emerged as critical to the future.

Faced with two distinct paths – a cavalier acceptance of the mass deaths that would be needed for “herd immunity” or the truly strict lockdown needed to extinguish the virus – “we are not on either route,” Harvard University economist James Stock, among the first to model the health and economic tradeoffs the country faces, said last week.

That means no clear end in sight to the economic and health pain.

“I am really concerned we are just going to hang out. We will have reopened across the board, not in a smart way … and we will have months and months of 15% or 20% unemployment,” Stock said. “It is hard to state how damaging that will be.”

TAKING STOCK

Treasury Secretary Steven Mnuchin and Fed chair Jerome Powell will appear via a remote internet feed before the Senate Banking Committee on Tuesday to provide the first quarterly update on the implementation of the CARES Act, which along with a follow-up bill formed the signature $2.9 trillion legislative response to the pandemic. (See a graphic  of the full stimulus.)

They will likely face detailed questions about their efforts after a rocky few months. The Paycheck Protection Program, in particular, was originally overwhelmed with applicants and criticized for hundreds of loans doled out to publicly traded companies.

Yet, now two months in, a replenished program still has $120 billion in funding available – money on the table that analysts at TD Securities suggest people have refused to pick up because of confusion about the terms.

The hearing is also likely to be a platform for Democrats to coax Mnuchin and Powell toward acknowledging that more must be done – Powell said so directly in an appearance last week – and for Republicans arguing against quick new action.

DEATH PROJECTIONS DOWN, TESTING UP

The lockdowns and money have had an impact on the disease’s spread, as the postponement of sporting events and other mass gatherings, and restaurant and store closings curbed the spread of a virus that some early estimates saw killing as many as 2 million Americans.

Deaths as of Saturday stood at around 87,000 and are expected to pass 135,000 by early August. (Graphic )

After federal government missteps and delays, testing has ramped up to 1.5 to 2 million tests a day, still less than half what health experts say the country needs. (Graphic )

Strict lockdowns slowed the rate of infection in the hardest-hit areas, “flattening the curve” so hospitals could retrain nurses, cobble together donations of personal protective equipment such masks, gloves and gowns, and were spared from the direst predictions about intensive care shortages.

However, the fight against the coronavirus may still be in its initial stages in more than a dozen U.S. states, where case numbers continue to rise. (Graphic )

And community agencies are noting increases in cases of domestic violence and suicide attempts after weeks of home confinement.

TRILLIONS MORE SPENDING AHEAD?

At its passage in late March the CARES Act was regarded as a major and perhaps sufficient prop to get the U.S. economy through a dilemma.

Fighting the spread of the virus came with a massive economic hit as stores closed, transportation networks scaled back, and tens of millions of people lost jobs or revenue at their businesses. (See a graphic of the economic fallout.)

Facing a decline not seen since the Great Depression of the 1930s, the main goal of the bill was to replace that lost income with checks to individuals and loans to small businesses that are designed to be forgiven.

JPMorgan economist Michael Feroli estimated recently that the loans and transfer payments under the act turned what would have been an annualized blow to income of nearly 60% from April through June into an annualized decline of 15% – sharp, but far more manageable.

GDP in the second quarter, however, will drop 40% on an annualized basis. The budget deficit this fiscal year is expected to nearly quadruple to $3.7 trillion.

Some of the deadlines in the CARES Act are approaching. The small business loans were meant to cover eight weeks of payroll, a period that has already lapsed for companies that closed in mid-March when President Trump issued a national emergency declaration. The enhanced $600 per week unemployment benefit expires at the end of July.

The House on Friday passed a new $3 trillion CARES Act to replenish some funding, but it is unclear whether the Republican-led Senate will take it up.

Weeks after a V-shaped economic recovery was predicted in March, most economists and health officials have a darker message.

“It is quite possible this thing will stay at however many deaths it is a day indefinitely, just wobbling up and down a little bit as epidemics move to different places around the country,” said economist and Princeton University professor Angus Deaton.

“The sort of social distancing we are prepared to put up with is not going to do very much.”

(Reporting by Howard Schneider; Additional reporting by Susan Cornwell; Editing by Heather Timmons and Daniel Wallis)

Coming next from the Fed: How much for Main Street?

By Howard Schneider

WASHINGTON (Reuters) – The U.S. Federal Reserve responded fast to the coronavirus crisis with open-ended programs to keep financial markets running and ensure major companies could raise cash as they usually do through large capital markets.

By forcing major parts of the economy to simply stop operating, however, the current crisis poses a direct threat to the hundreds of thousands of small and medium-sized businesses that don’t raise money by issuing stocks or bonds, but rely on myriad combinations of bank loans, owner’s capital and, in some cases, personal credit cards or home equity loans.

The Fed, in coordination with the Treasury Department, is planning a Main Street Lending Facility as one of its linchpin programs in the crisis. U.S. Treasury Secretary Steven Mnuchin said on Wednesday he hoped to announce details of the program this week.

Ahead of that, the following summarizes what is known about the Main Street program and what analysts who watch the Fed closely think it might look like:

WHO WILL PAY FOR IT?

In the $2.3 trillion emergency response bill enacted on March 27, $454 billion is set aside for the U.S. Treasury to use for new programs at the Fed, including the one for “Main Street.”

HOW BIG WILL IT BE?

This is the crisis where “trillions” have become the go-to denomination. Joseph Brusuelas, an economist with business consulting firm RSM who has followed the Fed’s crisis response closely, expects the Fed to receive an $85 billion capital contribution from Treasury and turn that into $1 trillion of lending power for businesses.

HOW DOES THE FED DO THAT?

The Fed gets its punch through “leverage,” or taking a given amount of money from Treasury and allowing financial institutions to create perhaps 10 times that amount in credit. The Fed is not supposed to take losses, since that would amount to laying out taxpayers’ money that it is not authorized to spend. But most loans don’t go bad: in effect every dollar provided by Treasury allows many more dollars of lending, because most of it will be repaid. The Treasury’s funds are there to cover only the small portion expected to go bad.

HOW WILL IT WORK?

The Fed is restricted from lending directly to companies or individuals. But it can provide financing to a “special purpose vehicle” that then either lends to or buys assets from, say, a bank that does provide business and consumer loans. Because those lending institutions now know they can send the loans to the SPV, they are willing to make deals with companies and consumers even in a risky environment. Cornerstone Macro analyst Roberto Perli said the Fed’s SPV could either buy loans directly, one at a time, from banks, or have banks bundle them into larger securities.

WHO WILL BE ELIGIBLE?

This may be the most difficult issue. Large companies get credit ratings from independent agencies such as Standard & Poor’s or Moody’s, and the Fed has used those credit ratings to draw a line around which companies are eligible for its programs. For “Main Street” lending, the Fed may have to lean on banks to assess the finances of midsize companies and sift those struggling only because of the coronavirus from those that were struggling anyway. The focus may be on firms with 500 to 10,000 employees, since those below the cutoff can get small business loans and those above it typically use the capital markets. As of early 2019 there were about 18,000 companies with more than 500 workers – including more than 2,000 midsize manufacturers that are an important piece of the U.S. industrial base.

(Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci)

WHO warns of global shortage of medical equipment to fight coronavirus

By Andrea Shalal and Stephanie Nebehay

WASHINGTON/GENEVA (Reuters) – The World Health Organization (WHO) on Tuesday warned of a global shortage and price gouging for protective equipment to fight the fast-spreading coronavirus and asked companies and governments to increase production by 40% as the death toll from the respiratory illness mounted.

Meanwhile, the U.S. Federal Reserve cut interest rates on Tuesday in an emergency move to try to prevent a global recession and the World Bank announced $12 billion to help countries fight the coronavirus, which has taken a heavy toll on air travel, tourism and other industries, threatening global economic growth prospects.

The virus continued to spread in South Korea, Japan, Europe, Iran and the United States, and several countries reported their first confirmed cases, taking the total to some 80 nations hit with the flu-like illness that can lead to pneumonia.

Despite the Fed’s attempt to stem the economic fallout from the coronavirus, U.S. stock indexes closed down about 3%, safe-haven gold rose 3% and analysts and investors questioned whether the rate cut will be enough if the virus continues to spread.

U.S. lawmakers were considering spending as much as $9 billion to contain local spread of the virus.

In Iran, doctors and nurses lack supplies and 77 people have died, one of the highest numbers outside China. The United Arab Emirates announced it was closing all schools for four weeks.

The death toll in Italy, Europe’s hardest-hit country, jumped to 79 on Tuesday and Italian officials are considering expanding the area under quarantine. France reported its fourth coronavirus death, while Indonesia, Ukraine, Argentina and Chile reported their first coronavirus cases.

About 3.4% of confirmed cases of COVID-19 have died, far above seasonal flu’s fatality rate of under 1%, but the virus can be contained, the WHO chief said on Tuesday.

“To summarize, COVID-19 spreads less efficiently than flu, transmission does not appear to be driven by people who are not sick, it causes more severe illness than flu, there are not yet any vaccines or therapeutics, and it can be contained,” WHO chief Tedros Adhanom Ghebreyesus said in Geneva.

Health officials have said the death rate is 2% to 4% depending on the country and may be much lower if there are thousands of unreported mild cases of the disease.

Since the coronavirus outbreak, prices of surgical masks have increased sixfold, N95 respirators have tripled in cost and protective gowns cost twice as much, the WHO said.

It estimates healthcare workers each month will need 89 million masks, 76 million gloves and 1.6 million pairs of goggles.

The coronavirus, which emerged in the central Chinese city of Wuhan late last year, has spread around the world, with more new cases now appearing outside China than inside.

There are almost 91,000 cases globally of which more than 80,000 are in China. China’s death toll was 2,943, with more than 125 fatalities elsewhere.

In a unanimous decision, the Fed said it was cutting rates by a half percentage point to a target range of 1.00% to 1.25%.

Finance ministers from the G7 group of rich countries were ready to take action, including fiscal measures where appropriate, Japanese Finance Minister Taro Aso said. Central banks would continue to support price stability and economic growth.

AGGRESSIVE CONTAINMENT

In the United States, there are now over 100 people in at least a dozen states with the coronavirus and nine deaths, all in the Seattle area.

New York state reported its second case, a man in his 50s who works in Manhattan and has been hospitalized.

The public transportation agency in New York, the most densely populated major U.S. city of more than 8 million, said on Twitter it was deploying “enhanced sanitizing procedures” for stations, train cars, buses and certain vehicles.

China has seen coronavirus cases fall sharply, with 129 in the last 24 hours the lowest reported since Jan. 20.

With the world’s second largest economy struggling to get back on track, China is increasingly concerned about the virus being brought back into the country by citizens returning from new hotspots elsewhere.

Travelers entering Beijing from South Korea, Japan, Iran and Italy would have to be quarantined for 14 days, a city official said. Shanghai has introduced a similar order.

The worst outbreak outside China is in South Korea, where President Moon Jae-in declared war on the virus, ordering additional hospital beds and more masks as cases rose by 600 to nearly 5,000, with 34 deaths.

WHO officials also expressed concerns about the situation in Iran, saying doctors lacked respirators and ventilators needed for patients with severe cases.

WHO emergency program head Michael Ryan said the need in Iran was “more acute” than for other countries.

While the case numbers in Iran appear to be bad, he said, “things tend to look worse before getting better.”

The International Olympic Committee on Tuesday said the summer games in Tokyo set to begin on July 24 were still expected to happen despite Japan having nearly 1,000 coronavirus cases and 12 deaths. Health officials said they would continue to monitor the situation in Japan before any final decision on the Olympics is made.

Interactive graphic tracking global coronavirus spread: https://graphics.reuters.com/CHINA-HEALTH-MAP/0100B59S39E/index.html

(Reporting by Andrea Shalal in Washington and Tetsushi Kajimoto in Tokyo; Additional reporting by Michael Nienaber in Berlin, Stephanie Nebehay in Geneva, Kate Kelland in London, Takahiko Wada in Tokyo; Writing by Robert Birsel, Nick Macfie and Lisa Shumaker; Editing by Alexander Smith, John Stonestreet and Bill Berkrot)

Fed says risks to economy easing, but calls out coronavirus in report to Congress

By Howard Schneider and Lindsay Dunsmuir

WASHINGTON (Reuters) – A “moderately” expanding U.S. economy was slowed last year by a manufacturing slump and weak global growth, but key risks have receded and the likelihood of recession has declined, the U.S. Federal Reserve reported in its latest monetary policy report to the U.S. Congress.

“Downside risks to the U.S. outlook seem to have receded in the latter part of the year, as the conflicts over trade policy diminished somewhat, economic growth abroad showed signs of stabilizing, and financial conditions eased,” the Fed said, noting that the U.S. job market and consumer spending remained strong.

“The likelihood of a recession occurring over the next year has fallen noticeably in recent months.”

Among the risks the Fed did note: the fallout from the spreading outbreak of coronavirus in China, “elevated” asset values, and near-record levels of low-grade corporate debt that the Fed fears could become a problem in an economic downturn.

Overall, however, the Fed saw risks to a more than decade long U.S. recovery easing following its three interest rate cuts in 2019, and evidence that “the global slowdown in manufacturing and trade appears to be at an end, and consumer spending and services activity around the world continue to hold up.”

It cautioned that “the recent emergence of the coronavirus, however, could lead to disruptions in China that spill over to the rest of the global economy.”

By law the Fed twice a year prepares a formal report for the U.S. Congress on the state of the economy and monetary policy.

Much of its amounts to a review of recent events. The new document repeats the Fed’s assessment that the current level of the federal funds rate, in a range of between 1.5% and 1.75% was “appropriate” to keep the recovery track.

It also reviewed the spike in the federal funds rate last fall and the steps the Fed has taken to relieve funding pressures, repeating it considers the measures technical and not a change in monetary policy.

Fed Chair Jerome Powell will present the report at two public hearings next week, and some Democratic U.S. senators have already posed in writing a series of questions challenging the Fed’s actions in those short-term funding markets.

The document did include a separate section analyzing how a slump in manufacturing last year impacted economic growth overall, after concern a downturn in that sector might pull the United States into a recession.

The Fed concluded that the slowdown in factory output, which also meant less business for parts and services suppliers, cut overall growth in gross domestic product between 0.2 and 0.5 percentage points.

That falls “well short” of the threshold associated with past recessions, the Fed said.

(Reporting by Howard Schneider and Lindsay Dunsmuir; Editing by Andrea Ricci)

Fed cuts rates on 7-3 vote, gives mixed signals on next move

By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) – The U.S. Federal Reserve cut interest rates by a quarter of a percentage point for the second time this year on Wednesday in a widely expected move meant to sustain a decade-long economic expansion, but gave mixed signals about what may happen next.

The central bank also widened the gap between the interest it pays banks on excess reserves and the top of its policy rate range, a step taken to smooth out problems in money markets that prompted a market intervention by the New York Fed this week.

In lowering the benchmark overnight lending rate to a range of 1.75% to 2.00% on a 7-3 vote, the Fed’s policy-setting committee nodded to ongoing global risks and “weakened” business investment and exports.

Though the U.S. economy continues growing at a “moderate” rate and the labor market “remains strong,” the Fed said in its policy statement that it was cutting rates “in light of the implications of global developments for the economic outlook as well as muted inflation pressures.”

With continued growth and strong hiring “the most likely outcomes,” the Fed nevertheless cited “uncertainties” about the outlook and pledged to “act as appropriate” to sustain the expansion.

U.S. stocks, lower ahead of the statement, dropped further, and Treasury yields ticked up from their lows of the day. The S&P 500 was last down 0.64% and the 10-year Treasury note yield inched up to 1.77%.

The dollar gained ground against the euro and yen.

“Another rate cut from the Fed to try to shield the U.S. economy from global headwinds,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. “Today’s move was more of a hawkish easing in that the Fed’s median forecasts for rates suggested no more cuts this year, while some officials dissented.”

New projections showed policymakers at the median expected rates to stay within the new range through 2020. However, in a sign of ongoing divisions within the Fed, seven of 17 policymakers projected one more quarter-point rate cut in 2019.

Five others, in contrast, see rates as needing to rise by the end of the year.

The divisions were reflected in dissents that came from both hawks and doves.

St. Louis President James Bullard wanted a half-point cut while Boston Fed President Eric Rosengren and Kansas City Fed President Esther George did not want a rate cut at all.

There was little change in policymakers’ projections for the economy, with growth seen at a slightly higher 2.2% this year and the unemployment rate to be 3.7% through 2020. Inflation is projected to be 1.5% for the year, below the Fed’s 2% target, before rising to 1.9% next year.

Fed Chair Jerome Powell is scheduled to hold a press conference at 2:30 p.m. EDT (1830 GMT) to elaborate on the policy decision.

The rate cut fell short of the more aggressive reduction in borrowing costs that President Donald Trump had demanded from Fed officials, whom he has insulted as “boneheads” who have put the economic recovery in jeopardy.

The Fed also cut rates in July, the first such move since 2008.

Fed officials have said the rate cuts are justified largely because of risks raised by Trump’s trade war with China, a global economic slowdown and other overseas developments.

Their aim, they say, is to balance the potential need for lower rates against the risk that cheaper money may cause households and businesses to borrow too much, as happened in the run-up to the financial crisis more than a decade ago.

(Reporting by Howard Schneider and Ann Saphir; Additional reporting by Richard Leong in New York; Editing by Paul Simao and Dan Burns)