New policies must take into account the repercussions of external reflation – Opinion

With the US Federal Reserve cutting the federal funds rate in September by 50 basis points more than expected, the market is expecting more rate cuts. However, recent data released by the United States showed that jobs in its non-farm sector rose by 254,000 in September, well above the 150,000 expected. Thus, the US unemployment rate fell to 4.1 percent in September, below the 4.2 percent forecast.

Buoyed by increased orders and firming business activity, the US ISM services PMI came in at 54.9 in September, well above the expected 51.7, the third consecutive month of ‘expansion. A series of US data in September far exceeded market expectations and led to a sharp reversal of rate cut expectations, prompting short selling of the yen and euro in the global foreign exchange market , and also the disruption of the recent appreciation of the renminbi.

As a result, concerns have arisen about reflation in the US, also because of the uncertainty of the presidential election. This will interrupt the Fed’s pace of rate cuts. If the new president supports the policy of a strong dollar, or imposes a 20 percent tariff on all US imports, inflationary pressure will be put on the US which is mainly dependent on imported consumers. goods

The strengthening of the US dollar caused by the current expectation of reflation may produce some external effects on a series of incremental policies recently introduced by China, such as causing a temporary depreciation of the RMB exchange rate. However, the US economy does not support sustained high interest rates, especially as interest payments on the US federal debt will reach $892 billion this year.

The main problem facing the Chinese economy is the lack of effective domestic demand, but China’s exports remain internationally competitive. Therefore, what China should do next is to implement an incremental policy package and actively expand domestic demand.

As the US economy enters a soft landing process and China begins to implement an incremental policy package, the impact of US factors on the Chinese economy may be reduced in the two different cycles . It is believed that with the orderly and gradual strengthening of its incremental policies, China’s economy will be on the way to a sustained recovery. The systematic and gradual strengthening of China’s political intensity will prevent irrational fluctuations caused by speculative sentiment, consolidating its economic growth base and improving the quality of growth.