Washington (AFP)

The American Central Bank says it is ready to act if the epidemic of new coronavirus threatens the American economy, which it considers "solid", against a background of urgent calls to lower interest rates.

Fed Chairman Jerome Powell said in a statement on Friday that "the fundamentals of the US economy remain solid", although "the coronavirus poses an increasing risk to economic activity".

"The Federal Reserve is closely monitoring developments and their consequences for the economic outlook. We will use our tools and act accordingly to support the economy," he said, without giving further details.

The New York Stock Exchange very briefly reduced its losses.

The Fed began a pause in December, leaving rates between 1.50 and 1.75% after three cuts. And its president Jerome Powell seemed inclined to stop there for a moment.

But the new coronavirus, which spread faster this week, could be a game-changer, as panic has even hit the stock markets: Wall Street is having its worst week since the 2008 financial crisis, and investors are turning to safe stocks, such as US debt, which has reached historically low levels.

All markets are now betting on a rate cut at the next Fed meeting on March 17 and 18, where a few days before they saw none on the horizon.

"The Fed has room to maneuver," as interest rates are higher in the United States than in Europe, said former Fed chairman Janet Yellen.

"It's not going to solve everything but it will support consumer spending, the American economy and the financial markets a bit," she said in Michigan on Wednesday, not ruling out the risk of recession after 11 years of growth.

- Antidote to recession -

"The Federal Reserve should urge the world's central banks to act immediately," said Kevin Warsh, a former Fed governor, in the Wall Street Journal on Wednesday, calling for rate cuts.

The Governor of the Bank of England Mark Carney has warned that global growth and that of the United Kingdom should slow down while the President of the European Central Bank (ECB) Christine Lagarde said it monitored "very carefully" the repercussions of the epidemic but did not observe for the time being any "lasting shock" on activity and inflation.

Would lower interest rates be an antidote to a possible recession?

Making credit cheaper helps encourage consumption to support or revive the economy, which was used to its limits by central banks during the 2008 financial crisis.

In the United States, household consumption alone accounts for 70% of GDP.

Donald Trump, campaigning for re-election, has been calling for such a drop for months, and re-launched hostilities on Wednesday: "We should pay lower interest rates."

He also admitted that the epidemic would undoubtedly prevent American growth from reaching 3% in 2020, growth being his main argument for staying in the White House.

The prospect of a rate cut does not delight economist Joel Naroff: "The concern is that Mr. Powell panics again and uses his tool of last resort, lowering interest rates." At the risk, according to him, of leaving less room for maneuver to support growth in the event of an economic slowdown.

© 2020 AFP