US Federal Reserve’s interest rates pledge leaves China with less room to manoeuvre

Economists forecast further US rate rises after a pledge by US Federal Reserve chief Jerome Powell to bring inflation under control

The move spells ‘bad news’ for China by limiting the ability to further cut rates while the economy is slowing down

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US Federal Reserve chair Jerome Powell (right), with vice-chair Lael Brainard and US Federal Reserve Bank of New York president and CEO John Williams at the central bank’s annual symposium in Wyoming. Photo: AP

Published: 9:31pm, 27 Aug 2022Updated: 9:59am, 29 Aug 2022

China’s monetary authority has less room to lower interest rates following a pledge by the US Federal Reserve to use all monetary policy tools available to “forcefully” to rein in inflation in the United States.

US Federal Reserve chairman Jerome Powell vowed on Friday to do whatever is necessary to tackle inflation, warning of “some pain” ahead but also acknowledging the global implications of any American policy move.

“We will keep at it until we’re confident the job is done,” Powell told the annual Jackson Hole Economic Symposium in Wyoming.

Economists generally expect US interest rates to rise to between 3.5 and 3.75 per cent, up from the current range of 2.25 to 2.5 per cent. China’s benchmark rate currently stands at 3.65 per cent.

This is bad news for China because it narrows the room for cuts even further at a time when China’s economy needs it the most

Alicia Garcia-Herrero

“This is bad news for China because it narrows the room for cuts even further at a time when China’s economy needs it the most,” said Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis.