Fed Restarts Rate Hikes Alongside Balance-Sheet Runoff as China's Central Bank Cuts Rates 'On Its Own Terms' — Possibly by Changing Its Policy Anchor - BigGo Finance

The Federal Reserve has resumed raising interest rates while continuing to shrink its balance sheet — a combination that tightens financial conditions through two channels at once. Rate hikes raise the cost of borrowing, while balance-sheet runoff withdraws liquidity from the financial system. When both tools work in the same direction, the cumulative effect on global funding conditions can be larger than either measure alone would suggest.

At the same time, China's central bank is moving in the opposite direction, cutting rates "on its own terms." The phrase points to a deliberate effort to keep monetary policy independent of the Fed's path, and analysts cited in the report suggest the People's Bank of China could adjust its policy anchor — the reference rate or framework it uses to guide market rates — rather than simply mirroring external moves.

For markets, the divergence matters. A widening policy gap between the world's two largest economies can influence currency levels, cross-border capital flows and the relative cost of funding in different regions. What to watch: how China's policy anchor evolves, whether the Fed signals more tightening ahead, and how exchange rates respond as the two central banks chart separate courses.