According to Bastien Drut and Karine Herve, from the Strategy and Economic Research team of Amundi, deflation is not only worrying the ECB but all central banks globally.
As the weeks go by, the signals being sent by the Chinese authorities are getting harder to tease apart. On Wednesday, they inferred via what were surely the unofficial words of China Urban Finance Society Secretary General Chan Xiangyang that the risk of China slipping into deflation was higher than it appeared.
The statement appeared in the newspaper of the People’s Bank of China (PBoC), which increases its reach. Apparently, this hazard was not included in the Chinese authorities’ announcements of tax cuts and lower costs for corporations and the soon-as-possible launch of some 100 hydroelectric projects.
Meanwhile, the PBoC, which has already intervened countless times and in many forms (cash injections, lower key interest rates, and reserve requirement ratios), seems once again to be preparing for further interventions to limit the risk of a crash landing by the Chinese economy.
The door is open for a long series of additional monetary easing. However, these pronouncements could be timed exactly right for Fed Chairman Janet Yellen, making her monetary policy that much easier to roll out.
Yellen, appearing before Congress, continued to blow hot and cold over the Fed’s monetary policy. After stressing how much the labour market had improved, she listed the pitfalls that lie in wait for the Fed. They include these same concerns over a faster-than-anticipated downturn in the Chinese economy, and the power of the Chinese reaction will modulate what leeway the Fed has over the coming years.
The FOMC has not yet officially decided if the glass is half-full or half-empty with regard to the state of the US economy, choosing instead to hide behind the “data-dependent” policy. More and more, FOMC members are losing confidence on the inflation outlook.