Made in America may be stamped on China stimulus

Jerome Powell isn’t losing much sleep over China's economic woes, absent a steeper turn south that jeopardizes the robust performance of the US. The feeling is far from mutual. Beijing is showing every sign of watching the Federal Reserve chair closely. Prospects for a meaningful boost to the economy hinge to a significant degree on what transpires at America’s central bank. Specifically, when Fed officials opt to cut interest rates and by how much.

Efforts by China to juice its economy have met with disappointment. Grand-sounding plans, such as encouraging state-backed enterprises to buy stocks, and government pledges to stabilise markets, aren't doing much to boost confidence. A key equity index sank to a five-year low on Friday. On the whole, initiatives have been cautious and vague. Muddling through seems to be the objective. Absent a decisive shift by the Fed, China has limited room to maneuver, in part because officials fear pronounced weakness in their currency, the yuan. The People’s Bank of China can make the odd cut in borrowing costs, but the effect is likely to be muted.
Punitive regulatory measures, such as tightening trading restrictions on institutional investors, will only sap confidence.

Happily, this is likely to change in coming months. Despite the market’s dour view of Powell’s television interview with 60 Minutes, the Fed’s message hasn’t materially changed: Inflation is retreating, hikes are done and reductions are coming this year. The Sunday night audience was different from that which typically parses every sentence, comma and inflection of Fed speak. The broad thrust of what Powell said was similar to that of his press conference after last week’s meeting of the Federal Open Market Committee. Powell told CBS he wasn’t fretting about China, his first public comments on the disappointing recovery in some time. “As long as what happens in China doesn’t lead to significant disruptions in the economy or the financial system, then the implications for the United States — we may feel them a bit, but they shouldn’t be that large,” he said.

Powell may not be too concerned, but he has devoted followers across the Pacific. The PBOC recently offered some revealing insights into its thinking about the Fed and how actions in DC may shape the response to challenges at home. The bank lowered the amount of reserves lenders are required to hold by a larger-than-anticipated amount, and did so on a Thursday during a rare afternoon news conference by central bank Governor Pan Gongsheng. Normally, these type of announcements dribble on a Friday evening , via dry statements on the bank's website.