Spread of virus in US will inevitably hit GDP growth

It has become clear over the past couple of days that the global spread of the coronavirus cannot be contained. The spike in reported cases within the US suggests that we are in the early stages of a domestic epidemic that will have a more marked impact on economic activity than we were previously assuming. We are lowering our 2020 GDP growth forecast to 1.8%, from 2.0%, and now expect the Fed to cut interest rates by 50bp between now and mid-year. But those forecasts still assume a relatively benign domestic outbreak – with the number of cases peaking in the tens of thousands over the next few months and then tapering off during the warmer summer months. A full-blown epidemic, which infects one-third of the population or more, would probably depress demand enough to push the US into a mild recession, prompting a more aggressive policy response – with interest rates returning to near-zero and Congress agreeing on an emergency fiscal stimulus.