June 6–7, U.S. and Chinese officials will be sitting down to discuss monetary policy, and the stakes for both nations have never been higher.
Last August’s U.S. market selloff and much of the volatility since has been directly tied to worries about the health of the Chinese economy. But while China has been focused on loosening the link between the yuan and the dollar, the Federal Reserve has strongly hinted at a June interest rate hike, a move, which could trigger more Chinese outflows, according to Bloomberg.
While it’s unlikely that China will be able to change the Federal Reserve’s mind about a rate hike, the two countries have a vested interest in keeping surprise policy decisions to a minimum.
Meeting Expectations
“If the Fed does end up raising rates more than expected that will clearly increase the pressure on China’s FX market,” said Louis Kuijs, head of Asia economics at Oxford Economics.
As of the March Fed meeting, the median Fed estimate called for two rate hikes in 2016.
China has already been doing its best to prepare for the seemingly inevitable U.S. tightening. After being depleted by more than half a trillion dollars in 2015, China’s foreign exchange reserves have increased…
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