What Is The Federal Reserve'S Delay In Raising Interest Rates?

China has always been a top factor in the decision of the fed to raise interest rates.

As early as 2009, the 1800 page meeting of the Federal Reserve, the most important question for policymakers in Washington is whether China can implement the necessary structural reforms to pform the Chinese economy from dependence on exports and investment to domestic consumption mainly because the United States needs the rebalancing of the global economy, so that the United States can have better external demand.

At a meeting of the Federal Open Market Committee in April this year, a number of staff members of the Commission reported that China had rebounded due to a large-scale stimulus plan.

These economists later called it an explosive rebound.

As time went on until the September 2015 fed meeting, the Central Bank of China carried out exchange rate reform in August 11th, which sharply lowered the central parity price for three consecutive days. This sentiment is not conducive to the Fed's imminent increase in interest rates.

After people understood the impact of the strategic adjustment of the PBoC's exchange rate policy, the market has already fallen into retreat.

Albert Edwards (Albert Edwards), Soci t t G e n rale, wrote a report that the depreciation of the renminbi would "change the market's view of the pressure on the US economy".

He warned that a possible exchange rate war involving emerging market countries would bring deflation into the United States and have a negative impact on US companies.

Barclays strategist still believes that the Federal Reserve will raise interest rates in September, but said, "this possibility has been somewhat reduced".

Daragh Maher, HSBC, said the possibility of raising interest rates by the Federal Reserve dropped from about 50% to about 1/3.

Adrian Owens, GAM's exchange fund manager, originally thought the Federal Reserve would raise interest rates in September, but China pulled out the exchange rate grenade safety bolt and changed Adrian's view. "Adrian"

Now, he thinks the possibility of raising interest rates by the Federal Reserve in September is half and half.

Finally, at the September interest conference, the Fed did not raise interest rates.

But in the eyes of experts, China's devaluation of the renminbi has given the fed a reason not to raise interest rates in September.

Owens said the Chinese government wanted to take the initiative.

He was relieved by the position of Atlanta Fed, the governor of the Atlanta Dennis Fed (Dennis Lockhart).

Lockhart had hinted that the Fed needed a reason not to raise interest rates in September.

Why is China's move so important to the Fed's decision?

The problem facing the Federal Reserve is how serious the Chinese economic slowdown will be.

In view of the volatility of the market, it is more sensible to remain temporarily unmoved and to see how this fluctuation affects data than to rush to raise interest rates that may only exacerbate turbulence.

"We have entered the period of market volatility with good momentum," said Diane Swonk, Mesirow Financial of Financial Services Company in Chicago. "This is very good." Diane, Financial

But this wave reflects new realities in China, emerging markets and overseas growth.

It is weaker and more unstable.

Best of all, China can stabilise at a slower pace.

This pattern is not the same as what we have learned in the past ten years.

The US exports to China account for only 1% of its GDP, which means that, at first glance, China's economic downturn will not have much direct impact.

In fact, in the 4 quarters of the past 5 quarters, consumption growth has exceeded 3%, and to some extent, the collapse of commodity prices caused by China's economic slowdown may also bring new impetus to American families.

But last year China contributed 40% of the world's growth, which means that

The sluggish indirect effect could still spread to the United States through dozens of heavily dependent countries in China, especially when other emerging markets such as Brazil are weak.

The prospect of accelerated growth and rate hikes in the US may trigger capital outflows from the weak emerging markets, and

Volatility and market turbulence.

This may further push up the US dollar exchange rate, drag down US exports and lower inflation.

How does the Fed respond?

China's downward trend is caused by structural real estate surplus and chronic industrial overcapacity, and all kinds of persistent disadvantages of SOE reform are of no help.

No one can foresee the management of this pformation, because pformation involves a wide range.

This has to be asked: how long should the Federal Reserve take China or emerging markets as a reason to keep interest rates unchanged, especially in the case of higher interest rates in the US?

7 years of zero interest rates have fuelled the growing financial distortions in emerging markets.

If the Federal Reserve continues to take the stability of financial markets as the guiding principle of policy formulation, it is likely that the result will be more late but more damaging policy adjustments and greater instability.

Besides, some

It is worried that China may clear up its treasury bonds on the occasion of the RMB exchange rate, which will have an impact on the US bond market.

The prospect of further disrupting the US is inflation.

Although the Fed is now about to achieve the first half of its dual mission, that is, to ensure full employment, it is far from certain whether we can achieve the second half of our mission, that is, to achieve the inflation target of 2%.

Commodity prices have fallen sharply, and market inflation expectations have recently declined in the face of sharp drop in demand and ample supply in China.

Considering that the price of West Texas Intermediate is back below $40 a barrel, inflation data may again be hit, further delaying the prospect of returning to the Fed's 2% target value.