On Sept. 18, the U.S. Federal Reserve announced a significant 50-basis-point interest rate cut, officially initiating a new round of monetary easing and ending two years of tightening. The move highlights the Fed’s efforts to address the substantial challenges posed by slower U.S. economic growth.
Coming from the largest economy in the world, any changes in U.S. monetary policy inevitably have far-reaching effects on global financial markets, trade, capital flows and other sectors. The Fed rarely implements a 50-basis-point cut in a single move, unless it perceives substantial risks.
The notable reduction this time has triggered widespread discussions and concerns about the global economic outlook, especially rate cut’s impact on other countries' monetary policies and capital movements. In this complex context, how global economies — particularly China — respond to the spillover effects has become a focal point in current economic policy debates.
The Fed's decision represents a broader shift toward rate cuts by other major economies (with the exception of Japan), fostering a globally synchronized trend of monetary easing. On one hand, this reflects a shared concern about slower global growth, with central banks reducing interest rates to stimulate economic activity and boost consumption and investment.
The global easing may yield both positive and negative effects on the world economy. Lower interest rates help relieve economic slowdown pressures, reduce corporate borrowing costs and spur investment and consumption, particularly in sectors such as real estate and manufacturing, which have been constrained by high interest rates. However, over the long term, such policies could elevate debt levels and heighten the risk of a financial crisis. Furthermore, globally coordinated rate cuts could lead to competitive currency devaluations, with the depreciation of the U.S. dollar prompting other nations to follow suit, exacerbating exchange rate volatility.
For China, the Fed’s rate cut may exert appreciation pressure on the yuan, which could negatively impact China’s export sector. This challenge is compounded by the sluggish global economic recovery, which puts additional operational pressure on Chinese exporters. Thus, maintaining the stability of the yuan exchange rate while preserving export competitiveness will be a critical task for China as it navigates the fallout from the Fed’s move.
The Fed’s rate cut is also likely to influence capital flows and cause fluctuations in China’s financial markets. Lower U.S. rates may attract international capital inflows to China, particularly into its stock and real estate markets. In the short term, these inflows could push up asset prices and stimulate market growth. However, historical precedent shows that capital flows can be highly volatile. Should external market conditions shift, capital could quickly exit, triggering sharp market fluctuations. Therefore, China must closely monitor capital flow dynamics, guard against potential market risks and prevent financial instability resulting from speculative capital movements.
At the same time, the Fed’s rate cut could put pressure on China’s foreign exchange reserves and international trade. A weaker U.S. dollar increases the volatility of China’s dollar-denominated assets, posing challenges for managing its foreign exchange reserves. Additionally, dollar depreciation could erode China’s export competitiveness, particularly in the context of weak global demand. Appreciation the yuan would further squeeze the profit margins of Chinese exporters. As a result, China will need to adopt more flexible monetary policies and foreign exchange management strategies to ensure stability in the foreign exchange market amid shifting global economic conditions.
Faced with the pressures of exchange rate volatility resulting from dollar depreciation, China should aim to maintain stability within the international monetary system, avoiding excessive yuan appreciation that could undermine export competitiveness.
Moreover, in response to the potential economic and financial market fluctuations triggered by the Fed, China must further strengthen risk management in its financial markets and increase capital adequacy to mitigate the risks posed by international capital flows.
In the face of uncertain global capital movement, China should optimize its asset structure by increasing the proportion of high-quality assets and reducing exposure to high-risk ones, thereby enhancing the stability of its financial system. Simultaneously, China should continue to advance the internationalization of the yuan, expand diversified capital markets and financial cooperation and boost its voice and competitiveness in global financial governance.
China should also steadily promote financial innovation and business transformation to enhance the profitability and resilience of its financial sector. Amid the global trend of synchronized monetary easing, traditional interest margin-based revenue models will be under pressure. Therefore, Chinese financial institutions should actively explore new income sources — such as wealth management and fintech, business diversification and service innovation — to strengthen overall competitiveness.
In line with national strategies, Chinese financial institutions should actively engage in the Forum on China-Africa Cooperation Beijing Action Plan (2025-27) and participate in financial cooperation under the Belt and Road Initiative. This involves strengthening research on international and regional developments, deepening collaboration with international financial institutions and local financial entities in relevant countries and securing greater access to local market information and support to prudently and steadily expand international financial operations. Actively participating in global financial governance and rule-setting will also enhance Chinese financial institutions’ ability to compete internationally.
The Fed’s recent rate cut heralds a new phase of global monetary easing, presenting both opportunities and challenges for the global economy. As the world’s second-largest economy, China must adopt proactive and flexible response strategies to ensure stability and sustainable development in this complex global environment. By strengthening risk management, optimizing monetary policy, promoting financial innovation and deepening international cooperation, China can find greater certainty amid a cascade of global economic uncertainties, securing the robust operation of its economy and financial system.
