Fed’s Mester says coronavirus uncertainty could lead to a demand shock: CNBC

© Reuters. FILE PHOTO: Cleveland Federal Reserve Bank President Loretta Mester poses during an interview on the sidelines of the American Economic Association’s annual meeting in San Diego

(Reuters) – Cleveland Federal Reserve President Loretta Mester said on Wednesday the supply shock induced by the coronavirus could have demand side implications, if uncertainty on its impact continues.

Mester said she supported the central bank’s decision to cut interest rates by 50 basis points in an interview https://www.cnbc.com/2020/03/04/market-rout-didnt-force-us-rate-cut-but-it-was-noted-feds-mester-says.html with CNBC, adding that the risks around the outlook had risen significantly.

“There’s still a lot of uncertainty about the course of the virus and what impact it’ll have,” Mester said.

“This (rate cut) was really in response to the economy and the outlook and the risks around the outlook.”

Mester, who assumes a voting role this year on the Fed’s policy-setting committee, said the problem induced by the coronavirus is a case of “classic supply shock.”

“Certainly lowering interest rates are not going to get people to start traveling again, their social interactions are not going to be changed by a lower interest rate,” she said.

The situation could morph into something that may affect business, consumer and investor sentiment, Mester added.

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