The Federal Reserve to raise interest rates soon, China economy will suffer?

Federal Reserve Chinese economy bank loan

kanshangjie· 2017-03-09 10:56:00

China as the emerging economies, the body of the largest one, whether the Fed's monetary policy will be the biggest impact?

Author: Sun Xiaoji.

Fed rate hike is now That's final. things, according to the Reuters, expressed in Yellen on Friday if the data are consistent with the expected recent rate hike may be appropriate speech after the Fed rate hike in March was more than 90% probability. In a public speech on Friday, Yellen believes that the Fed rate hike operation is strictly follow the full employment and price stability maintenance of these two important goals. The U.S. unemployment rate remained at 4.8% in January, has been close to full employment levels, inflation is also significantly improved, close to 2% of the management objectives. It seems that on the issue of interest rate hike, the delay of Ms. Yellen, this time should not be delayed by the interest rate schedule back.

market and instant reaction to this is: after February, the dollar index rose 1.78% last week, stand on the 102, non US currencies most callback, the RMB is also under pressure approaching the 6.9 mark, devaluation pressure rise. Of course, sparking fears more thing is that the Fed rate hike this time, with the new president Trump "to revive the U.S. manufacturing sector" policy, is likely to form more than ever for emerging markets, strong impact and influence on China, seems also will be more obvious than ever.

what are the implications of Yellen's monetary policy and uncle Trump's economic policies? One thing that worries us is that, according to the observation of many articles, historically, the appreciation of the dollar and the Fed's interest rate policy, usually a direct blow to emerging economies. So, today's emerging economies in China as the body of the most massive one, whether the Fed's monetary policy will be the biggest impact?

let's start with a brief look at the impact of the Fed's monetary policy on the world economy from 1980s to the present. There are mainly three times during the

" on the Federal Reserve to raise interest rates, respectively in 1980s, 1990s, and 2004 to 06 years. From the last century since 70s, the United States pursued Keynes's Economic Counselor found past tested Keynes doctrine has been so bad, the American economic stagnation, stagflation. In order to control the expansion of the currency, the Federal Reserve to tighten monetary policy, so in 1980, the Fed launched the interest rate hike cycle. At that time, emerging markets in Latin America, then there is a capital flow fluctuations, the original net inflow of capital into outflows, which hit the Latin American economy.

second interest rate hike occurred in 90s. 1994 to 1995 the fed continuously raised interest rates 7 times over the same period of Latin American emerging market countries capital inflows fell from $115 billion 800 million to $64 billion 300 million. Influence in Latin America for the fed to raise interest rates, the market is very obvious and fast. Why is this so? The reason is that the flow of capital in Latin American countries to bank loans, and therefore very sensitive to interest rates, once the bank credit contraction, the capital will be a massive flight. And these funds, many of which are what we call the international hot money, are short-term speculative funds. For example, Mexico, Latin America, in the middle of the 90s of the last century, 70% of the foreign investment in Mexico are short-term securities investment. Therefore, as long as the Fed interest rate hike, the dollar rose, speculative strong Latin American economy will immediately appear volatile .

" we can see according to the economic data CEIC the company's production form, can be observed clearly, in every dollar interest rate hike cycle, the Latin American economies tend to capital outflow (or capital formation caused by financial volatility however, ), the turmoil in Asia is not exactly the same. Every time the Fed rate hike cycle, the capital flows in Asia are basically positive and stable . For example, in the period 1992 to 1993 the Fed rate hike, the Asian market net capital inflows rose by an average of 8.6%, and 1994 to 1995 the Fed rate hike during the average growth rate of Asian capital increased to 26.6%, that is to say, no matter how strong dollar, the Asian market still has a strong appeal for international capital investment, not only because of the increase in interest rates and easily withdraw from asia.

this is clearly due to better economic fundamentals of Asian countries, more stable market. Asian economy since 1980s, the average growth rate of 6.2%, higher than the Latin American countries, so the international capital is less speculative than Latin America, many belong to the medium and long-term capital . Therefore, it will not appear as long as the Fed raising interest rates, the capital on the massive realization of the dollar, so as to achieve cross-border free flow of this phenomenon. However, we have to pay attention to, at least in this form is that, since 90s, after thoroughly at the end of the Fed rate hike cycle, the Asian market will appear capital flow reversal and the economic crisis . Why is this?

we can use international capital to "cut wool" means to explain this phenomenon . Since the two World War, the economy has become the world's largest power, foreign investment is also more than the old capitalist countries in the United Kingdom, long-term occupation

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