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Mainland markets not influencing Fed: experts
http://www.ecns.cn/2015/07-31/175206.shtml
Jul 30th 2015, 23:15
U.S. central bank leaves interest rates unchanged
The U.S. Federal Reserve announced Wednesday it would keep interest rates close to zero, but the decision was not due to concern over fluctuations in China's stock markets in recent weeks, experts said Thursday.
After a two-day meeting on Tuesday and Wednesday of its policy-making body, the Federal Open Market Committee (FOMC), the Fed said in a statement that the current 0 to 0.25 percent target range for the federal funds rate remains "appropriate."
Some investors and analysts have argued that the Fed's decision was driven partly by concerns about China's economic uncertainties, especially the recent fluctuations in mainland bourses.
David Kostin, chief U.S. equity strategist at Goldman Sachs Group, said that many investors believed that China's economic uncertainties might lead the Fed to delay raising interest rates until 2016, because these uncertainties, including China's A-share plunge, have raised concerns about China's growth prospects and the potential knock-on effect on global growth.
"The concerns have outweighed the boost from U.S. economic acceleration," Kostin was quoted as saying by a Wall Street Journal report Monday.
News portal ifeng.com Thursday also cited an unnamed investor as saying that China's stock market volatility had made the Fed reluctant to raise interest rates at the current stage.
The investor noted that China's market plunge, along with some other factors, could lead to global economic instability, which would hinder the recovery of the U.S. economy.
Mainland stock markets have slumped since mid-June, and the central government has announced a number of measures to restore stability.
However, Wang Dong, deputy executive director of the Institute for China-U.S. People-to-People Exchanges at Peking University, told the Global Times Thursday that overseas capital has limited access to domestic financial markets, and the influence of China's stock performance on foreign markets is too small to be able to sway any major economic policy decisions.
The U.S. business channel CNBC on Tuesday also cited several economists as saying that the Fed is more concerned about China's real economy, which has been under pressure, than about the capital markets.
Yu Yongding, an economist with the Chinese Academy of Social Sciences, said that when the Fed considers interest rates, it would focus mainly on the situation in the U.S., with other countries having limited influence on its economic decisions.
"The most important reason why the Fed decided to maintain the current interest rates is because the U.S. economy, despite recent pickups in certain areas, still has not sent a very clear signal of a complete and stable recovery," Yu told the Global Times Thursday.
The Fed also pointed out that economic activity in the U.S. has been expanding "moderately" in recent months. While the labour market and the housing sector saw some improvement, areas such as exports continued to stay "soft," it noted.
In the statement, the FOMC didn't provide any clues as to when interest rates would be raised, noting that it will take into account "a wide range of information" when assessing how long to maintain the current interest rates.
But experts believe a rate rise will come soon. Michael Feroli, chief U.S. economist at JPMorgan Chase, was quoted by the New York Times Wednesday as saying that the Fed statement "leaves the door wide open to a September liftoff." The FOMC next meets on September 16 and 17, according to the New York Times report.
Norman Chan, chief executive of the Hong Kong Monetary Authority (HKMA), said that the time is approaching for a U.S. rate rise. He also cautioned that it could have an impact "on global fund flows and asset markets, and may lead to greater market volatility," according to an HKMA statement on its official website on Thursday.
Wang from Peking University also said that the coming rate rise could lead to capital flight from China, but emphasized that the scale would probably be "very small."
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