In terms of gross domestic product, China may trail the United States, but it won’t play a game of follow the leader when it comes to hiking interest rates, according to a Bloomberg survey. The common notion in the U.S. capital markets today is the Federal Reserve will likely maintain their hawkish stance and increase the federal funds rate to cap off a two-day monetary policy meeting that began yesterday.
As the trade war between the countries with the two largest GDPs rage on, an economic slowdown in China also has the country’s central bank pumping the brakes on rate hikes. The survey, comprised of 40 traders and analysts, revealed that the prevailing sentiment is that China will keep the interest rate for the People’s Bank of China seven-day reverse-repurchase agreements will stay static at 2.55.
“There is no need to follow,” said Meng Xiangjuan, chief bond analyst at SWS Research Co. in Shanghai.
The expectancy of a Fed rate hike is backed by a bevy of economic data that shows a strong U.S. economy, including second quarter gross domestic product showing an increase of 4.2%, which is expected to be revised higher to 4.3%. In addition, the extended bull market has added more fuel to the proverbial flame with the S&P reaching record-breaking levels.
Of course, trade wars will also weigh heavily on China’s central bank with respect to monetary policy. In the latest round of tariffs, U.S. President Donald Trump announced he would be move forward with imposing a 10% tariff on $200 billion worth of Chinese goods that includes a step-up increase to 25% by the end of the year.
It took less than 24 hours for China to respond with $60 billion worth of tariffs on U.S. goods that affected a list of 5,207 products within a range of 5 to 10%. Both the U.S. and China have already slapped each other with tariffs worth $50 billion total.