Fed’s Yellen: U.S. Rates Too Hot for China
A top Federal Reserve official said Monday U.S. monetary plot is too hot for China and Hong Kong and clarified any distress those nations ultimately face because of this situation arises from their own foreign exchange policies.
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“Because both the Chinese and Hong Kong economies are further along in their recovery phases than the U.S. economy, current U.S. monetary plot is likely to be excessively stimulatory for them,” Federal Reserve Bank of San Francisco President Janet Yellen said. “But, as both Hong Kong and the mainland are currently pegging to the dollar, they are both to some extent stuck with the plot the Federal Reserve has chosen to promote recovery,” she wrote in a bank Economic Letter published Monday.
The central merchant banker said that if China wants to prevent U.S. policies from overheating its economy and driving inflation, it will have to do something about its foreign exchange plot.
“Augmented exchange rate flexibility could mitigate on the rise inflationary concerns, and also act toward easing global imbalances and encouraging the development of the household sector, a shift the Chinese government now officially says it wants,” Yellen said.
The current stance of Federal Reserve monetary plot is very aggressive by any measure, with small-term interest rates set essentially at zero. The Fed also will until the end of March be buying mortgage assets to help keep borrowing rates down. While a improving economy is driving the Fed to reckon about ways to unwind its current plot stance, there are questions whether mortgage buying will continue beyond March. Meanwhile, most economists don’t believe the Fed will rates rates until much later this year.
China’s economy is improving more rapidly than the U.S., and there have been widespread worries that its economy may be on the rise at an unsustainable rate. Fed rate plot and what it does to global borrowing patterns plays a part in that scenario. Fed officials, but, have downplayed the matter and said that they must set U.S. plot to deal with U.S. economic realities. They’ve also said Chinese plot makers are responsible for dealing with their own economy.
The bank said Yellen’s comments were adapted from a report by Yellen based on a visit to China and Hong Kong on Nov. 15 to Nov. 21, 2009.