The spread of the coronavirus COVID-19 appeared to be slowing, but adjustments in the criteria for recognizing cases changed, boosting the reported number of infections. The change increased anxiety and uncertainty about the economic impact.
Fed Chair Powell covered little new ground in his monetary policy testimony. He cautioned that the general low level of interest rates means that there is less scope for monetary policy stimulus during a downturn. Fiscal policy stimulus (tax cuts, increased government spending) would likely be needed, Powell said, but we are not currently on a sustainable budget path.
Retail sales rose 0.3% in the initial estimate for January (down 19.4% before seasonal adjustment), as expected. Industrial production fell 0.3%, partly reflecting a 10.7% drop in aircraft and parts. Factory output was mixed, but lackluster otherwise. The Consumer Price Index rose 0.1% in January (+2.5% y/y), up 0.2% ex-food & energy (+2.3% y/y).
Next week, the economic calendar is relatively light. Producer price data and residential construction figures are subject to seasonal noise in January (so take the figures with a grain of salt). The Conference Board’s Index of Leading Economic Indicators is expected to have risen about 0.5% in January, breaking a modest five-month downtrend. FOMC minutes are unlikely to shed any light on future monetary policy decisions, but we may see some differences of opinion among senior Fed officials.
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