Chinese President Xi Jinping took to the virtual stage in Davos to address Fed Chair Jerome Powell – please don’t raise interest rates.
“If major economies slam on the brakes or reverse monetary policy, it would have serious negative repercussions. They would jeopardize global economic and financial stability, and developing countries would bear the brunt,” Xi said, according to a transcript of his remarks on Monday.
Of the major central banks, the Fed is expected to be the most aggressive as financial markets are now pricing in four rate hikes and also expect the central bank to begin reducing the size of its nearly $9 trillion balance sheet. The yield on benchmark 10-year government bond TMUBMUSD10Y hit 1.812% on Tuesday, its highest level since January 2020.
Traditionally, Fed officials brush aside concerns about how their policies affect other economies, saying they can only set policy for the US economy.
Xi has reason to be nervous about Fed tightening
Despite tariffs introduced by President Donald Trump and continued under President Joe Biden, Americans are still aggressively buying Chinese products. By November, China was the top import source of goods at $463 billion, surpassing Mexico at $350 billion and Canada at $324 billion.
Craig Bothan, chief China+ economist at Pantheon Macroeconomics, pointed out that export growth has helped China offset weaker domestic growth and prop up its manufacturing sector.
China’s economy continues to slow, falling to 4% year-on-year in the fourth quarter from 4.9%. On Monday, the People’s Bank of China cut two interest rates by 10 basis points.