Yuan move probably appropriate if China slowing – Fed’s Dudley

An adjustment to China’s currency is probably appropriate if that economy is weaker than Chinese authorities expected, an influential US Federal Reserve policymaker said on Wednesday. Markets have been hypnotized by seemingly never-ending promise of cheap money.

“Obviously if the Chinese economy is weaker than maybe what the Chinese authorities anticipated, it’s probably not inappropriate for the currency to adjust in outcome to that weakness”, said New York Fed President William Dudley. He did not comment on the timing of interest rate hikes nor update his economic forecasts.

“What’s going on in China has huge implications for the rest of the world…”

In his capacity as New York Fed president, Dudley serves as the vice chairman and a permanent member of the Federal Open Market Committee, the group responsible for formulating the nation’s monetary policy.

Dudley says he realizes there’s a negative impact there, and hopes that rates can get back to a more normal level soon. If so, stocks could very well turn tail from here and continue their multi-year meltup.

“Rochester possesses a unique set of assets that are, I think, key to successful economic reinvention including a highly skilled workforce, world-class higher education institutions, a diverse economic base and a forward looking cooperative engagement between the public and private sector”, said Dudley.

While dollar strength does on the margin reduce the likelihood of near-term Fed tightening, the overall impact on U.S. growth and inflation will be limited compared with other economies.

Economist Michael Hanson at Bank of America Merrill Lynch told clients on Monday that developments in China made a September Fed liftoff call “just a little closer” by increasing the uncertainty around upcoming policy meetings.

“It seems that the Fed is watching what is happening in China, but they’re not panicking”, Costerg said. Prolonging the inevitable just makes the hangover more painful.