Week In Review
This week, the Federal Reserve Open Market Committee (FOMC) released the minutes from its January meeting. The minutes show the Fed believed the economy was set to grow at a faster pace than projections made at their December meeting. A majority of participants noted that a stronger outlook for economic growth “raised the likelihood that further gradual policy firming would be appropriate. “Almost all participants” saw inflation moving up to the Fed’s 2% inflation goal over the “medium term,” citing above-trend growth and a strong labor market.
The Fed’s confidence in the economy continues to grow. This bolsters expectations for further rate increases, with the first coming as soon as the committee’s March meeting.
Chinese regulators seized control of Anbang Insurance Group Co. and announced that its chairman would be prosecuted for fraud. Anbang was one of the largest and most visible of the Chinese financial firms raising funds through the sale of products offering higher yields to Chinese investors and using those funds to acquire illiquid assets. This move comes just days before key party meetings to settle government personnel appointments ahead of the National People’s Congress next month.
This move is a very visible signal that President Xi is committed to the effort to reduce leverage and risk in the Chinese financial system. However, the government seizure also indicates that Anbang would be unlikely to be able to make good on its financial obligations without government support. It is unclear to what extent other Chinese financial firms are as shaky as Anbang and will need government support during a significant deleveraging process. However, the deleveraging process is very likely to result in a significant slowing in Chinese economic growth.
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