The US economy is starting the year in a strong position but the virus outbreak in China has the potential to create drag, a top Federal Reserve official said Thursday.

Recent US trade agreements have eased uncertainty for American businesses, but Fed Vice Chair Richard Clarida said the central bank is closely watching the impacts from the new coronavirus.

"The fundamentals of the US economy were solid in 2019 and continuing into 2020," Clarida said in an interview on CNBC.

But he cautioned that the epidemic will have a "noticeable impact on Chinese growth" at least in the first three months of the year, and that could spill over to US companies that rely on components from China.

"Supply chains are very important, so to the extent that supply chains are disrupted by the coronavirus, that can show up in terms of inputs to the US economy," he said.

However, he echoed other officials saying "it is too soon to tell, but we're monitoring closely."

Federal Reserve Vice Chair Richard Clarida is upbeat on the US economy but watching China closely
Federal Reserve Vice Chair Richard Clarida is upbeat on the US economy but watching China closely AFP / Brendan Smialowski

Apple warned this week that it will miss its sales targets in the quarter and iPhone supplies will be constrained due to problems getting products out of China, where the outbreak has killed more than 2,100 people and shuttered businesses nationwide.

"We are monitoring because China's a huge part of the global economy," the Fed official said.

However, the "phase one" trade deal with China that President Donald Trump signed last month, as well as the signing of the USMCA, a new continental free trade pact with Canada and Mexico, has reduced for companies the uncertainty that was seen as a factor holding back investment.

"Coming into the year, certainly I was open to the view that we could see a rebound in business investment and of course the housing sector has been strong and will continue to support growth," he said.

US manufacturing contracted last year amid Trump's multi-front trade wars, but recent data suggests companies are much more upbeat.

The Philadelphia Fed's manufacturing index released Thursday surged 20 points to a three-year high.

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