OPINIONS World must weigh moves as Trump pressures Fed


World must weigh moves as Trump pressures Fed

Global Times

06:03, July 12, 2019


(Photo: AP)

US Federal Reserve Chairman Jerome Powell on Wednesday signaled that the Fed would likely cut interest rates as soon as this month. It's highly unusual for the Fed to lower interest rates at a time when the economy has been growing quickly and unemployment is low. 

It seems that US President Donald Trump's pressure for interest-rate cuts has affected the Fed's independence. Powell cited unresolved trade tensions as one reason behind the potential cut. This can be taken as a starting point for the Fed to "match" Trump's economic policy. 

People need to watch closely to see if Trump is able to draft the Fed into his trade war. Trump will have freer access to starting a full-blown trade and currency war if the Fed is forced to become a new ally of the White House. 

It's necessary for China to consider how to offset any economic hardship caused by a loss of independence in the Fed's policy. 

Beijing is likely to make preparations against the Fed's possible moves.

Monetary policy should be decided by the Fed independently, or else the market will be buffeted by rising unpredictability. So it's increasingly urgent for China to increase the flexibility of its monetary and fiscal policies to defend itself against external forces. There must be a close watch on the stock, foreign exchange and commodity markets, which may quickly overreact to any possible stimulus from the Fed's moves.

China's central bank may take pro-active and pre-emptive measures to fine-tune its monetary policy to respond to the Fed's potential rate cut. It is worth considering the granting of more loans at lower interest rates to small and medium-sized enterprises. 

We also cannot rule out the possibility that China may cut its benchmark interest rate to inject liquidity into the financial system. China's central bank has not shifted its benchmark one-year lending rate since 2015, which leaves more room for policy easing.

It's time for China and the rest of the world to consider how to react as Trump places pressure on the Fed to join the trade war. 

Unconventional methods may be needed because a loss of independence in the Fed will encourage the belligerence of the US government and escalate the trade war.

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