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BEIJING – October 21, 2026 – The Federal Reserve’s September rate hike is likely to prove a precautionary move against inflation risks rather than the start of a new round of sustained tightening, with overall spillover effects relatively manageable, economists Hu Youwen and Tao Chuan said.

The two made the remarks in a written interview with China News Service (CNS) conducted here on wednesday, noting that China’s macro policies are now being rolled out in quick succession, with their cushioning effect on the economy gradually emerging, while the medium- to long-term allocation value and value-for-money appeal of yuan assets are becoming more prominent as the A-share technology growth sector resonates deeply with the global business cycle.

“The Fed’s move may prove to be a precautionary hike in response to inflation risks, and does not signal the start of a new round of sustained tightening,” Hu Youwen, General Manager of the Research Institute at Guolian Minsheng Securities, and Tao Chuan, the firm’s Chief Economist, told CNS.

The trigger for this hike differs markedly from past tightening cycles. For one thing, the move was not driven by economic overheating or runaway inflation. Energy prices have risen recently and inflation risks have resurfaced; by tightening now, the Fed aims to lock in its anti-inflation gains, with the core objective likely being to safeguard policy credibility and hedge tail inflation risks rather than to suppress the real economy through sustained tightening.

For another, the U.S. economy can hardly withstand sustained, steep rate hikes. Although the job market has recovered, the breadth of job gains remains narrow and household wage growth continues to slow, the economists told CNS.

“If a sustained tightening cycle took hold, U.S. Treasury yields and AI industry financing costs would rise further, creating a double drag on the U.S. fiscal position and core industries,” they said.

The market had already largely priced in the September hike, and global core asset prices had moved in advance. With the decision now delivered, the pressure for further global liquidity tightening has eased, and shocks to capital markets, emerging-market currencies and cross-border capital flows should diminish at the margin.

A Fed hike could marginally weaken overseas end-demand and put pressure on parts of China’s export supply chains. But this tightening is expected to be less persistent than past cycles, so the overall impact on external demand should be limited. Global AI capital expenditure remains in an upcycle, and with China’s manufacturing sector covering a wide range of product categories and backed by a complete industrial ecosystem, related exports are expected to keep benefiting from growth in global industrial investment.

More importantly, shifts in external liquidity will not change the main trajectory of China’s economic recovery. Since August, macro policies have entered a phase of intensive implementation, and the downward trend in some economic indicators has moderated, indicating that the cushioning effect of previously introduced policies is beginning to show. The disturbance to China’s steady economic performance from changes in the external environment is therefore expected to remain relatively limited, said the economists.

While a Fed hike may affect short-term cross-border capital flows, the medium- and long-term case for foreign investors allocating to yuan assets has not fundamentally changed.

China’s equity and bond valuations are within a reasonable range, the economy is recovering steadily and corporate earnings are improving, which makes the value-for-money and safe-haven appeal of yuan assets stand out, the two economists were quoted as saying.

Notably, since the policy-driven rally of late September 2024, known in the domestic market as the “924” rally, the positive correlation between A-shares and U.S. stocks has risen markedly, with particularly close linkage in the technology sector. The Nasdaq epitomizes global technology industry momentum and risk appetite, while the ChiNext Index and the STAR 50 Index are both high-beta growth assets that resonate deeply with the Nasdaq in industrial logic, risk appetite and liquidity expectations.

Although shifts in overseas liquidity may cause short-term disruption to the AI industry, they have not changed its medium- to long-term outlook, the economists predicted, adding that the U.S. AI industry’s upcycle remains firmly in place and is expected to feed through further into China’s capital markets.

As China’s artificial intelligence, high-end manufacturing and semiconductor sectors continue to develop, the A-share technology growth sector is expected to capture more of the benefits of the global technology upcycle, they added.

Overall, this rate hike places relatively limited constraints on China’s macro policy, and China can respond on three fronts, the economists pointed out.

On external demand, it should stabilize competitive exporters and their orders, and expand into Belt and Road Initiative partner countries and emerging markets, to mitigate the impact of demand shifts in any single market.

On monetary policy, China should maintain a “domestically oriented” approach while balancing internal and external equilibrium, adjusting policy in line with growth, employment and price conditions and keeping liquidity reasonably ample. It should also make its monitoring of stock, bond and foreign exchange linkages and its expectation management more forward-looking, and explore establishing countercyclical arrangements for long-term capital during external shocks, so as to strengthen the stabilizing allocation role of yuan assets.

On policy coordination, China should strengthen coordination between monetary and fiscal policy, forming a joint force in stabilizing growth, employment and risk prevention, and using the certainty of domestic policy to offset uncertainty in the external environment, the economists suggested.

“By consolidating the domestic base through coordinated policy and meeting long-term allocation demand with asset resilience, China’s economy and capital markets are expected to further demonstrate their advantages amid external volatility,” they told CNS.

The Fed raised its benchmark federal funds rate target range by 25 basis points to 3.75%–4.00% on Sept 16 — its first increase since July 2023 — in a unanimous 12-0 vote. Fed Chair Kevin Warsh described the move as removing some easing rather than increasing restraint, while the median dot plot pointed to the year-end rate rising to 4.1%, from 3.8% projected in June, signaling that further tightening remains on the table.

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Established on October 1, 1952, China News Service (CNS) has 31 branches in provinces and municipalities on the Chinese Mainland and 21 outbound branches or report stations in regions and countries including the United States, Canada, the UK, France, Germany, Belgium, Russia, the Republic of Korea, Japan, Australia, Thailand and Kazakhstan. As a Chinese-language media source, CNS has been an Asian pioneer since it first set up its internet portal. Its website, www.chinanews.com, was launched in Hong Kong in 1995.

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