Fed·IMF, "COVID-19, the Most Urgent Uncertainty in the Global Economy"

[Asia Economy New York=Correspondents Baek Jong-min and Jung Hyun-jin] The U.S. Federal Reserve (Fed) and the International Monetary Fund (IMF) have expressed concerns over the expanding uncertainty in the global economy caused by the novel coronavirus disease (COVID-19).

According to the minutes of the Fed's January Federal Open Market Committee (FOMC) meeting released on the 19th (local time), Fed officials showed strong vigilance regarding COVID-19. The virus was mentioned eight times in the minutes. The officials stated, "COVID-19 has emerged as a new source of uncertainty for the global economic outlook," and pointed out that "COVID-19 could act as a significant volatility factor in the stock market." Some officials also noted that the yuan, which was expected to strengthen due to the U.S.-China trade agreement, could decline again.

However, they said, "The U.S. economy is stronger than expected. Some trade-related uncertainties have decreased," and added, "The economy is expected to continue moderate growth due to accommodative monetary policy." While the market interpreted that interest rates might be lowered due to the impact of COVID-19, it appears that the Fed emphasized the possibility of maintaining the current rates.

Earlier, the Fed unanimously decided to keep the benchmark interest rate at 1.50-1.75% during the regular FOMC meeting last month.

On the same day, the IMF also expressed concerns about the global economic impact of COVID-19. Kristalina Georgieva, IMF Managing Director, wrote on the IMF website blog that "uncertainty is becoming the 'new normal,'" and described "the COVID-19 outbreak as our 'most urgent' uncertainty." She said the situation was "a global health emergency that was unexpected in January," and that "the best-case scenario is that the economic damage caused by this outbreak will be short-lived." She also warned, "Even in that best-case scenario, growth in many parts of the world remains weak," and "unforeseen events could threaten the fragile economic recovery."

In particular, she noted that "economic activity is being disrupted as production in China has stopped and movement near the infected areas is restricted," and predicted that "other countries will be affected through tourism, supply chains, and commodity prices." She warned that if the situation prolongs, China's slowing growth will deepen, damaging global supply chains and significantly dampening investor sentiment. The IMF emphasized that international cooperation is essential and stressed that "policymakers must carefully balance domestic policy mixes to ensure sustained recovery."