By Nick Timiraos

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.

The Labor Department's monthly employment report, released separately on Friday, showed the U.S. economy added 225,000 jobs last month. The share of Americans with a job rose, as did those looking for work, which brought the unemployment rate up to 3.6% from 3.5% in December.

While inflation ran slightly below the central bank's 2% goal last year, Friday's report from the Fed said measures of consumers' and businesses' expectations for future inflation have been stable.

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.

While officials raised the bar for additional rate cuts late last year, they have signaled they see greater risks of surprises that could prompt them to lower rates than to lift them.

The coronavirus is the latest example of such a development. Fed officials have called it a "wild card" and have said they are carefully monitoring the implications of idled business activity in China, the world's second largest economy.

"It is too early to say what the full economic effect of the outbreak will be," said Randal Quarles, Fed vice chairman for bank supervision, in remarks Thursday in New York.

The U.S. economy grew at an average annual rate of 2.1% during the second half of 2019, somewhat slower than in recent years but slightly above the rate most Fed officials expect to prevail over the long run.

Friday's report estimated that last year's decline in factory production in the U.S. would reduce overall growth by around 0.2 percentage points last year. After accounting for downstream effects of those production declines, economists estimate the contraction would shave no more than 0.5 percentage points from GDP growth, which the report said was "not enough to tip an otherwise-expanding economy into recession."

(END) Dow Jones Newswires

February 07, 2020 11:15 ET (16:15 GMT)