By Michael S. Derby 

Two regional Federal Reserve officials said Tuesday that the novel coronavirus, which causes the illness known as Covid-19, in China was casting uncertainty over the U.S. outlook, with one official hinting that a worst-case scenario might call for lower short-term interest rates.

But for now, neither suggested it was time to change rates after the rate-setting Federal Open Market Committee lowered them three times last year in a bid to buffer the economy against trade uncertainty and slowing global growth.

The current target rate range stands between 1.50% and 1.75%, and in their most recent forecasts central bankers said they don't expect to change that range this year.

When it comes to monetary policy, "I would say it's steady as she goes right now, and we can just take the data as it comes in" before changing anything, St. Louis Fed leader James Bullard told reporters on a conference call after a speech in St. Louis. For the interest-rate outlook, "I think an important element is whether inflation is moving back toward target."

Mr. Bullard isn't a voting member of the FOMC this year but was last year, and he was one of the central bank's strongest supporters of lowering rates. Minneapolis Fed leader Neel Kashkari, who also spoke Tuesday in an appearance in Montana, was also a strong supporter of lower rates, and holds an FOMC vote this year.

Mr. Kashkari said that the current setting of monetary policy is either neutral or slightly stimulative but that any significant worsening of Covid-19 could affect Fed policy. "One could imagine monetary policy responding...to help the U.S. economy manage its way through" trouble if it were to happen, he said.

On Monday, Philadelphia Fed leader Patrick Harker, who is also an FOMC voter this year, said he is in favor of holding rates steady for now. But he added, "if the situation gets significantly worse, and we start to see significant impact on the U.S. economy, then we'd have to think about accommodation. But I don't think we're at that point right now."

The comments by the regional Fed official happened right around an appearance before Congress by Fed Chairman Jerome Powell. He again flagged a positive economic outlook and noted that he sees monetary policy in the right place for now.

Mr. Bullard said the Fed's three rate cuts in 2019 have caused a substantial easing in financial conditions and "have changed the outlook for shorter-term U.S. interest rates considerably since November 2018, ultimately providing more accommodation to the economy." Those easier conditions have "helped to create a reasonable prospect that the U.S. economy will achieve a soft landing in 2020."

Mr. Bullard said he was taking a "wait-and-see" approach toward gauging the impact of Covid-19 developments.

"The efforts to bring the virus under control are substantial enough that the Chinese economy is expected to grow noticeably slower in the first quarter of 2020 than it otherwise would have," Mr. Bullard said. "Experience with previous viral outbreaks suggests that the effects on U.S. interest rates can be tangible and last until the outbreak is clearly contained," he said.

Mr. Kashkari also renewed his disdain for cryptocurrencies in his appearance. When it comes to things like bitcoin and similar currencies, "people are getting fleeced by nonsense."

The Fed official said the cryptocurrency sector is "just a giant garbage dumpster" and added that "all that's emerging is burning garbage."

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

February 12, 2020 16:47 ET (21:47 GMT)

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