The Fed'S Withdrawal From QE Has Limited Short-Term Impact On China'S Economy.

In accordance with the US Federal Reserve FOMC's earlier agreed timetable, the Federal Reserve will completely withdraw from the QE in October.

At the same time, the Fed will also discuss interest rates in the October Conference on interest rates. Because of the huge "spillover" effect of the US monetary policy, this matter has attracted the attention of the world.

Two conclusions can be drawn from the above observations.

First, the domestic economic performance of the United States has entered a stable period, and the economic growth and price performance basically returned to the level of consensus. It has been out of the shadow of the international financial crisis. The most basic performance is the core index of non-agricultural employment rising continuously, which is also the most important anchor target for US monetary policy.

From the past trajectory, the unemployment rate in the United States rose sharply in the two years after the financial crisis in 2008 and exceeded 10% in October 2009. That is to say, since then, the Federal Reserve has started QE, and by the end of 2013, it has implemented three rounds of quantitative easing to release huge liquidity to the market.

In December 2013, the contract began to shrink (the size of the purchase of debt was reduced by 10 billion yuan) and entered the exit cycle.

Correspondingly, the US economy has entered the recovery cycle, and the unemployment rate has dropped all the way to 6.1% in June this year, reaching the level before the financial crisis.

The relative stability of domestic economy and employment confidence has created the conditions for the complete withdrawal of QE.

The total withdrawal time of QE set by the Fed is that the unemployment rate has dropped to below 6.5%.

Two, the relative maturity of the US monetary policy operation is remarkable.

Its performance is target anchoring (mainly employment indicators) and rhythm control is concise and clear, and keeps pace with economic operation, especially in the expected management.

The Fed began to discuss and deliberate the withdrawal of QE from mid year. In December, it began to implement the policy of reducing the size of the monthly purchase of debt. In March this year, it was proposed to withdraw from the FOMC meeting minutes until the autumn. In June, the full withdrawal time would be determined in October, and the policy signals were fully released.

During this period, the US economy and employment data basically maintained a sustained recovery trajectory, adding credibility to the policy.

Raising interest rates is regarded as the complete signal of QE's final withdrawal.

On this topic, Williams, chairman of the Federal Reserve Bank of San Francisco, recently made a speech on the economic outlook, which is regarded as a weathervane to interpret the position of the FED.

Williams said that the gap between the current market and the Fed's interest rate rise time is not large. Considering the lag effect of monetary policy, the interest rate increase may need to be carried out ahead of schedule. It is estimated that the United States will achieve full employment in 2016.

From historical data, the current interest rate level in the United States remains at the lowest level in history, and the federal benchmark interest rate is near zero, and there is also room for larger interest rates.

Therefore, it does not seem to be a question of whether the United States will withdraw from the QE at all, but what will be the effect of QE withdrawal and how to deal with it.

QE's total withdrawal will have positive effects on the United States: first, monetary policy contraction, especially raising interest rates can reserve space for future counter cyclical operations, and maintain the long-term flexibility of monetary policy instruments; two, it can consolidate the weakened international position of the dollar after the international financial crisis, and the strong dollar will reestablish and strengthen global confidence in its reserve and settlement currency; three, raising interest rates and the appreciation of the dollar can promote international capital reflux, continue to provide funds for the US economic recovery, and strong dollar and capital return can also balance trade deficit, and further strengthen the market's confidence in the US economy and the US dollar.

This is the favorable influence of QE exit on the US economy at the present stage.

Of course, there is also the price, that is, the huge potential external debt costs will rise.

QE's total withdrawal from international "spillover effect" is very clear. It shows that the strong dollar makes international hot money liquidity shrink, will squeeze international commodity prices, gold prices will further return to the properties of precious metals, quasi monetary attributes continue to decline, crude oil and other prices will show a downward trend, which is conducive to the control of imported inflation, but capital return to the United States will not be conducive to the shortage of capital, the state's use of foreign capital may have an adverse impact on its real economy and capital market.

As for Europe, due to various "deficiencies", the euro as the main currency of the world will be squeezed by the strong dollar, and the weakness will continue. The euro's prospect of becoming an international currency that keeps pace with the US dollar will be even more remote.

But the increased purchasing power of the US dollar will help countries increase their exports to the US.

Overall, the impact of the Fed's total withdrawal from QE on China has both advantages and disadvantages. In the short term, it has little impact on the economy or on the capital market.

The advantages lie in the following aspects: first, the reduction of the risk of imported inflation and the increase in exports to the United States are also applicable to China; two, as the largest creditor country in the United States, the degree of guarantee for China's huge foreign exchange reserves will increase; three, the overall price stability of commodities will bring benefits to China's huge demand; four, because of the strength of the US dollar, the US dollar will be the main anchor.

The other currencies are expected to remain strong. The stability of the RMB will help to continue to move towards the international mainstream currency, and the international influence will be further enhanced.

Adverse factors mainly exist in the United States entered the interest rate cycle, China's economic growth shift off, the boom shortwave cycle has not actually entered the recovery stage, while the domestic local government financing platform, real estate boom fluctuations "counter cyclical" operation requires monetary policy to continue to maintain.

"If the economic growth rate further declines and endanger employment stability, monetary policy will not be ruled out further loosening. Therefore, there may be a certain" reverse resonance "period between China and the US monetary policy, until the Chinese economy has entered a stable recovery period, which will likely increase the risk of exchange rate frictions between the two countries, which may make China's central bank need to consider more external factors when easing policy conditions.

In addition, China's PPI has been negative for more than two years. International commodity prices are sluggish, which may continue to suppress supply prices in the upstream market. Under the background of domestic demand is not booming, the efficiency of these industries is difficult to improve.

A small judgement is based on the following facts: first, because China's economy and capital volume are relatively large, and its capital market openness is relatively low, the negative impact of capital reflux on China will be very limited. Two, because the QE withdrawal has occurred for a long time, the market expectation has been relatively full. Because of the existence of basic demand, the international crude oil and international bulk commodities will generally be stable and unlikely to have too intense turbulence. Three, there is a big gap between the US and China's interest rate space, and this gap will continue to exist in the initial stage of the Fed's interest rate increase, which will not have immediate and substantial impact on the domestic market.

On the whole, our country has accumulated considerable economic foundation and comprehensive national strength, broad domestic circling space, and more active policies and reforms. Under this background, the foundation and guarantee for the sustained prosperity of China's economy and capital market is to steadily push forward all reforms, firmly release the reform dividends, stimulate the social innovation vitality, consolidate the existing original power of economic growth, and foster the new engine of economic growth and social development, which is the decisive factor for stabilizing and prospering the domestic economy and capital market and coping with external shocks.