Traders in China and beyond may be “over-relaxed” about US central bank’s rate moves
Hong Hao said investors have priced in just a single rate increase, cited US treasuries’ performance
Investors in China and around the world may soon have to reassess the rate-hike path taken by the US Federal reserve, the central bank for the world’s largest economy, Hong Hao, chief strategist of Bocom International, said.
“I think some traders are over-relaxed regarding the rate hike outlook,” he said.
He said investors had priced in an only one-time interest rate hike by the Fed for this year and cited the performance of US treasuries.
The US economy is on a solid course with hints of inflation and the bank is headed towards further interest rate increases, chairwoman Janet Yellen said on Thursday in a rare gathering with her predecessors.
“The US economy has continued to progress in a satisfactory way,” Yellen told the International House, a New York-based non-profit residence for students. “We continue to see good job performance, some evidence of inflation moving up. So that was our expectation when we raised rates in December.”
It is the first time that Yellen and former Federal Reserve chairmen Ben Bernanke and Paul Volcker appeared together, financial news television channel CNBC reported.
Former Fed chairman Alan Greenspan, who headed the US central bank from 1987 to 2006, appeared by video link from Washington.
“Yes. There is accommodation in the monetary policy that we have. But we think the gradual path of rate increases will be appropriate,” Yellen said. “We remain on a reasonable path and I don’t think December was a mistake.”
She also rebutted a recent statement from US Republican presidential candidate Donald Trump about that country’s economy.
“I hope I’m wrong, but I think we’re in a big, fat, juicy bubble,” Trump told CNBC’s Power Lunch programme.
The US “is not a bubble economy,” Yellen said.
At the end of last year the Federal Open Market Committee unanimously voted to set the new target range for the federal funds rate at 0.25 per cent to 0.5 per cent, up from zero to 0.25 per cent. It was the first rise in US interest rates in nine years.
China’s foreign exchange reserves rose in March, the first monthly gain since November. Analysts said that was partly due to favourable currency valuation effects after the euro and yen strengthened against the US dollar that month. Pressure for a weaker yuan and further capital outflow remained.
Chinese stock markets posted small losses on Friday morning. The benchmark Shanghai Composite Index lost 0.9 per cent, or 27 points to 2,981.42. The Shenzhen based Nasdaq-style ChiNext shed 0.96 per cent to 2,227.13.
In the moderated discussion, Yellen and her predecessors expressed agreement over each other’s varied handling of the US economy. They also said China’s growing prominence in world trade posed more of an opportunity than a threat and that fiscal policymakers should step up more to support the Federal Reserve’s economic stimuli, Reuters reported.