Jay Powell and Yi Gang Sound Pretty Similar These Days
(Bloomberg Opinion) -- To listen to the People's Bank of China and the Federal Reserve, you wouldn't know that Beijing and Washington are engaged in Cold War-like tussle. Monetary officials in both places sound like they are using the same lines to describe pandemic-era economic challenges — be it spurts in inflation, or the proper amount of support for a deceptively robust recovery.
A lot hinges on the two superpower central banks getting the policy mix right and complementing, rather than countering, each other. After a few enviable quarters of growth, China's economy is heading back toward its pre-Covid pace of around 6% — or less. The Fed needs to withdraw from massive stimulus very gently or risk global market convulsions. Neither is likely to undertake a sharp course correction: The Fed's tightening will be gradual, as will any easing from the PBOC.
PBOC Governor Yi Gang is inclined to look through a jump in factory-gate prices that sparked angst among investors a few months ago. A bigger concern is keeping the recovery going, especially given the outbreak of Covid-19's delta variant in economically vital parts of the country. The recent surge in producer prices “is most likely to be temporary,” the PBOC said Aug. 9 in its quarterly report. “It may persist at a high level in the short term, but will probably fall back as the base effect fades and global supply production recovers.”
That sounds a lot like “transitory,” one of Fed Chair Jerome Powell’s favorite words for what it anticipates to be a short-term bump in inflation. Officials have also used “temporary” in liberal doses. Like the PBOC, America’s central bank sees the price climb an inevitable catch-up from a deep slump. The Fed’s main preoccupation appears to be buttressing the labor market.
While China didn't open the spigots as aggressively as the U.S., either on the monetary or fiscal fronts, Beijing isn’t rushing to dispense with the support it did put in place. “The basis of the domestic recovery is not yet solid,” the PBOC said in its report. That's not radically different from the Fed, which is tiptoeing toward trimming quantitative easing, so long as “substantial further progress” is made toward its goals.
Until a few months ago, China's recovery looked impressive. It posted a record 18.3% growth in the first quarter from a year earlier and 7.9% in the April-to-June period. Lately, things have slowed down and authorities want to take out some insurance. The PBOC last month lowered the amount banks must keep in reserve, a move unexpected in its speed and breadth. Officials have signaled another cut might be in the offing. HSBC Holdings Plc described the stance as “fine tuning.” Is it all that different from Powell’s plans for a very gradual taper of QE that could begin in a few months and proceed slowly over the course of a year or more? This isn't a bold Fed.
Yes, the Fed makes decisions independently. That’s a luxury the PBOC doesn’t enjoy. It’s important, however, not to get too obsessed with differences in the political systems under which each operates. China's inflation performance over the years resembles that of advanced economies, Reserve Bank of Australia officials Bradley Jones and Joel Bowman wrote in a December 2019 paper.
The U.S. and China have left open the possibility of a summit between their presidents. Treasury Secretary Janet Yellen, who led the Fed for four years until 2018, is weighing her first trip to China as America’s top economic official. Tensions notwithstanding, trade between the two countries is booming. There may be more common ground than the prevailing narrative suggests in areas of consequence.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.
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