WASHINGTON—The Federal Reserve said Friday that risks of weaker-than-expected U.S. growth had declined late last year but that the possible spillovers from the effects of the new coronavirus in China present a new risk to the outlook. In its semiannual report to Congress, the central bank said the U.S. economy remains on a solid footing after more than 10 years of expansion, with labor markets providing more than enough jobs to absorb new entrants to the workforce. Fed officials at their meeting last week left their benchmark federal-funds rate steady in a range between 1.5% and 1.75% and signaled little reason to change course for now. Officials cut rates three times last year amid worries about a sharper-than-anticipated slowdown in global growth and business investment. “Recent indicators provide tentative signs of stabilization. The global slowdown in manufacturing and trade appears to be nearing an end, and consumer spending and services activity around the world continue to hold up,” the report said.
But it said the recent emergence of the coronavirus, which has led to quarantines in China and a halt to travel in and out of the country, “could lead to disruptions in China that spill over to the rest of the global economy.”
Fed Chairman Jerome Powell is scheduled to deliver the report and testify on Capitol Hill Tuesday and Wednesday as part of hearings mandated by law. Financial markets had been ebullient last month due to a trade truce between the U.S. and China and glimmers of firmer global manufacturing activity. But fears about China’s coronavirus outbreak reignited global growth worries last week, sending the benchmark 10-year Treasury yield below 1.6%, its lowest level since October.