Ex-Fed risk expert warns of inflation, advises China on economic challenges

The anticipation of a delayed US interest rate cut is putting pressure on emerging-market currencies, particularly China’s yuan. The interest-rate gap between Western nations and China is complicating the People’s Bank of China’s efforts to achieve its currency targets while managing capital outflow risks. This challenge was highlighted by Carl Tannenbaum, former US Federal Reserve risk manager and current chief economist at Northern Trust.

Tannenbaum pointed out that while a US rate cut might be possible in September, inflation remains a critical factor that the central bank will consider before making any moves. Concerns about geopolitical tensions and supply chain disruptions impacting inflation were also raised, echoing a warning from the International Monetary Fund about the potential for increased goods inflation.

China’s economic indicators, such as declining producer prices and modest consumer price growth, indicate the challenges the country faces. While the US is implementing significant public expenditure plans to boost demand, China continues to rely on exports for growth. Tannenbaum suggested that China needs to consider a large government spending package and focus on AI investment to address its economic issues.