Does the Fed cut interest rates release uncertain signals? Does China follow?

category:Finance
 Does the Fed cut interest rates release uncertain signals? Does China follow?


Intensification of differences

At the meeting, three Fed officials voted against it. James Bullard wants to cut interest rates by 50 basis points to a target range of 1.50% to 1.75%, while Esther L. George and Eric S. Rosengren want to keep their benchmark interest rates unchanged between 2% and 2.25%.

When the Federal Reserve cut interest rates, global asset prices fluctuated, U.S. stocks rollercoaster, gold plunged, the dollar soared, and short-term U.S. Treasury yields soared.

On the market, the Dow fell 200 points and then quickly rose, closing slightly higher by 0.13% to 27147.08, NASDAQ slightly lower by 0.11% to 8177.39, and S & P 500 slightly higher by 0.03%. Gold fell sharply, with London gold now falling to $1483 an ounce, while the dollar index rose sharply, reaching 98.5757 in late New York.

After the Fed cut interest rates, many central banks followed suit for the first time. The Central Bank of Jordan has decided to cut interest rates on all monetary policy instruments by 25 basis points since September 19. The Central Bank of the United Arab Emirates said it would cut the deposit slip rate by 25 basis points from September 19 and the repo rate for borrowing short-term liquidity by 25 basis points. At 5 a.m. this morning, the Brazilian central bank cut its benchmark interest rate for the second time in a row to 5.5%. Overnight, Saudi Arabia also announced that it would cut its repurchase rate by 25 basis points. In addition, in the afternoon of the same day, the Bank of Indonesia announced to reduce the 7-day reverse repo rate by 25 basis points to 5.25%.

Less than two months later, interest rates were cut again, mainly because of the economic pressures of the United States itself. Starstone believes that the U.S. economy is facing three pressures: first, the negative impact of Sino-US trade frictions is gradually emerging; second, the global economic growth is slowing down, and the U.S. large and medium-sized enterprises are basically global operations, of which about 40% of the S&P 500 index componentsrevenue comes from overseas, in the context of the global economic weakness. Third, the effect of tax cuts has weakened, and it is expected that new stimulus plans will be difficult to come up before the general election. Under such circumstances, the pressure on the U.S. economy is also quite obvious: the August non-agricultural data recorded 135,000 people, not only lower than expected, but also hit a new low since May; PMI returned to below the boom and bust line after three years; and inflation remains weak.

But there are many uncertainties about whether to cut interest rates further in the future. The bitmap released at this meeting also shows that the internal differences within the Federal Reserve ticket Committee have increased. In 2019, the median expected benchmark interest rate is 1.875%, i.e. keeping the current interest rate unchanged from 1.75% to 2.0%. Five voting committees believe that the benchmark interest rate at the end of 2019 is 2.125%, that is, the September meeting should not cut interest rates; five voting committees expect the interest rate to be 1.875% before the end of the year, that is, there will be no further reduction. Interest rate; the other seven people expect the benchmark interest rate to be 1.625% at the end of the year, which means another interest rate cut in the second half of the year.

After the meeting, Federal Reserve Chairman Powell held a press conference and said that if conditions permit, the Federal Reserve will take a series of interest rate cuts, but he does not think it is necessary now. The data will determine future action, and he and his colleagues are ready to take action to keep the 10-year expansion going. If the economy does decline, broader interest rate cuts will be appropriate. But we dont see that now.

Blade said Fed Chairman Powell avoided the main question were all asking is to give us some guidance on whether to cut interest rates again.

Zhou Hao, a senior economist in Asia at Commerzbank in Germany, commented that he believed that even the Federal Reserve itself could not fully explain that the rate cut on Thursday morning was a preventive rate cut, a hawk rate cut, or a pigeon rate cut. From the news conference of Federal Reserve Chairman Powell, it is difficult for the market to get a very clear message. What we see is that the Federal Reserve has no clear vision of the future. Not surprisingly, President Trump fired again, arguing that the Federal Reserve had neither courage nor vision.

It has little impact on China.

The Peoples Bank of China announced on September 19 that in order to maintain the stability of liquidity at the end of the quarter due to factors such as peak hedging period, payment of government bonds and expiration of local treasury cash management, the reverse repurchase operation of 170 billion yuan was carried out on September 19, 2019 by means of interest rate bidding, of which the winning rate of 120 billion yuan 7-day reverse repurchase is still 255. The 14-day interest rate of 50 billion yuan was also stable at 2.70%.

Starstone believes that, in fact, the biggest constraint facing Chinas monetary policy is not external, but domestic inflation and how to avoid stimulating real estate under the premise of reducing the financing costs of the real economy. Previous market expectations for Chinas MLF interest rate cut in September are higher, but the expectations did not materialize. We think that there may be two main considerations: First, due to the rapid rise in pork prices, domestic CPI has been at a high of 2.8% for two consecutive months, which has restricted further easing of monetary policy; In the early stage, comprehensive reduction + directional reduction landed, and about 900 billion yuan of liquidity was put into the market. However, the interest rate cut did not meet the market expectations, thus avoiding the markets expectation of flood irrigation.

After the Federal Reserve announced the interest rate cut, the exchange rate of the US dollar against the major currencies rose, but Zhao Qingming, an international financial expert, believed that the possibility of a sustained rise was unlikely, mainly because interest rates were only one of several factors affecting the exchange rate, and exchange rate movements were mainly affected by factors such as fundamentals and capital flows, not because of this. Secondary interest rate cuts change the existing exchange rate trend. Simply looking at the Feds interest rate cut, the impact on the RMB exchange rate is not great. As for whether we will follow the interest rate cut, it is not likely to be observed at present. But I advocate reducing interest rates, because it is clear that we have seen an increase in downward pressure on Chinas economy and a marked slowdown in the growth of corporate investment, especially private investment.

Zhou Hao said that the Central Bank of China can adjust monetary policy slowly and rhythmically in the coming period of time, so that commercial banks can really concede profits to enterprises, which is the key to improve the transmission efficiency of monetary policy. For the RMB, it will also be the theme to maintain its stability. Although the exchange rate seems to fluctuate, the RMB exchange rate appears to fluctuate orderly. At the same time, the US dollar exchange rate does not seem to have obvious direction, so it is difficult for the RMB exchange rate to fluctuate beyond expectations. For the RMB, the internal environment may be more important, economic growth has slowed down, but downside risks are limited, and the current account surplus is also rising. Compared with the current account surplus of 0.4% of GDP last year, the current account surplus has risen to 1.4% of GDP in the first half of this year, which is a relatively large one. Improvement also means that the RMB has a stable base. In other words, in the past month, although the exchange rate of RMB has been in a fluctuant mood, in fact, the fluctuation is less than 2%. The managed fluctuation of exchange rate will remain the theme of the exchange rate of RMB. Source: Responsible Editor of Economic Observation Network: Liu Song_NBJ9949

Zhou Hao said that the Central Bank of China can adjust monetary policy slowly and rhythmically in the coming period of time, so that commercial banks can really concede profits to enterprises, which is the key to improve the transmission efficiency of monetary policy. For the RMB, it will also be the theme to maintain its stability. Although the exchange rate seems to fluctuate, the RMB exchange rate appears to fluctuate orderly. At the same time, the US dollar exchange rate does not seem to have obvious direction, so it is difficult for the RMB exchange rate to fluctuate beyond expectations. For the RMB, the internal environment may be more important, economic growth has slowed down, but downside risks are limited, and the current account surplus is also rising. Compared with the current account surplus of 0.4% of GDP last year, the current account surplus has risen to 1.4% of GDP in the first half of this year, which is a relatively large one. Improvement also means that the RMB has a stable base. In other words, in the past month, although the exchange rate of RMB has been in a fluctuant mood, in fact, the fluctuation is less than 2%. The managed fluctuation of exchange rate will remain the theme of the exchange rate of RMB.