The Strategist

Experts: US, China central banks can enter trade war

06/06/2019 - 11:54

Head of the US Federal Reserve System (FRS), Jerome Powell, said that he was closely following the situation with the negotiations on trade issues, and made it clear that he has a possibility to intervene if the tensions begin to slow down the American economy. Investors immediately perceived it as the Fed's willingness to lower rates. In turn, economists at Bank of America Merrill Lynch believe that the Central Bank of the People's Republic of China may also try to lower the rates, if the country's economy starts to slow down due to trade contradictions with the United States.

faungg's photos via flickr
faungg's photos via flickr
Recently, US Federal Reserve Head Jerome Powell spoke at a conference on monetary policy in Chicago. In particular, he touched upon the situation related to trade negotiations: “We are closely monitoring the possible consequences of this situation for the dynamics of the American economy and, as always, we will act according to circumstances to support the positive dynamics, the stable situation on the labor market and the target inflation in the region of 2%.”

The stock market immediately responded to these words: the Dow Jones index soared more than 500 points. "Given the uncertainty, both in the trade issue and in the question of interest rates, the market will welcome any clarification," - quoted Bloomberg, vice president of investment strategy at E*Trade Financial, Mike Loewengart.

Shortly after, analysts at Bank of America Merrill Lynch noted that the Chinese Central Bank could also lower interest rates. Helen Qiao, Chief economist at BofA ML for China, believes that if trade wars begin to slow down the Chinese economy, the People’s Bank of China can lower the rate twice in 2019 and one more time in 2020. “The next stage of raising tariffs for Chinese goods in the amount of $ 200 billion will be much more sensitive and may have an impact on overall economic growth,” said the economist at CNBC. In turn, in relation to the US BofA ML expects that the Fed will cut rates this year also twice - in September and December.