Dec 16, 2015 12:47 AM
The Latest: Higher US rates could be headache for China
The Associated Press
WASHINGTON (AP) The latest on the Federal Reserve's landmark two-day policy meeting which began Tuesday. The central bank is expected to raise interest rates for the first time in nearly a decade. All times local.
Some experts say higher American interest rates could increase capital outflows from China, put downward pressure on the yuan and complicate Beijing's efforts to avoid a sharp economic slowdown.
Private sector analysts estimate November's capital outflow at $100 billion to $115 billion, up sharply from October's $37 billion.
Logan Wright, director of China market research for Rhodium Group, says Beijing's need to control capital outflows would hamper the ability of policymakers to stimulate China's slowing economy by cutting interest rates. Lower rates would reduce the appeal of assets valued in yuan, encouraging still more money to flow out of the economy.
Wright says "the potential for normalization of U.S. monetary policy should definitely be seen as a headwind for Chinese attempts to ease monetary conditions."
Asian stock markets are rising strongly ahead of the Fed's widely expected decision to raise rates for the first time in nearly a decade.
The rise is part of a global rebound that also saw U.S. benchmarks post their biggest gains in a week.
Low interest rates have been a boon for stock market investors for several years but Fed officials have telegraphed the likely decision far in advance. That has removed some of the uncertainty that investors dislike.
Japan's Nikkei 225 jumped 2.1 percent and South Korea's Kospi climbed 1.9 percent.
Hong Kong's Hang Seng advanced 2.3 percent and the Shanghai Composite Index in mainland China rose 0.7 percent.
The Fed is poised to raise short-term interest rates for the first time in nearly a decade. A rate hike will be a sign that top Fed officials think the U.S. economy is now strong enough to be weaned from the extraordinary level of support provided by the central bank.
Fed officials wrap up their December meeting on Wednesday. Markets expect them to hike the Federal Funds Rate, which is what banks charge to lend to each other overnight, by 0.25 percentage point to a range of 0.25 to 0.5 percent.
When the Fed slashed rates to near zero in December 2008, few anticipated that they would stay there for seven years. Past surveys show that many economists expected the first hike to be in 2010.
But the recovery from the worst economic downturn since the 1930s has been a long haul.