China warned to brace for US stimulus tapering, rate increases with Jerome Powell to remain as Fed chair
- Jerome Powell was nominated by US President Joe Biden on Monday in Washington to serve for a further four years as chair of the US Federal Reserve
- Further policy divergence between the world’s two largest economies is seen as being of particular concern as Beijing is moving towards loosening its support
Jerome Powell’s nomination for a second term as chair of the US Federal Reserve has fuelled market expectations of faster-than-expected stimulus tapering and earlier than expected interest rate increases, triggering calls for China to make early preparations for the United States normalising its monetary policy.
Further policy divergence between the world’s two largest economies is seen as being of particular concern as Beijing is moving towards marginal loosening of its monetary policy to support its slowing economic growth, suggesting the necessity for bilateral coordination to manage spillover effects for the rest of world.
China may relax its monetary stance given growing downward risks. It will mark further policy divergence from the US
“The nomination could fuel market expectations for rate hikes to help contain inflation,” China International Capital Corporation said on Tuesday.
“It will also help the communications between the Fed and market, and facilitate financial stability.”
The nomination comes at a time when containing inflation has become the top economic priority for the Biden administration.
US inflation has risen above 5 per cent for six straight months and hit a decade-high of 6.2 per cent in October, pushing the current inflation rate above the average target of around 2 per cent.
