Declining Fed Reserves, U.S.-China Rivalry, and China's Growth Aspirations: Latest Developments in the Global Economy
Significant developments are occurring recently in the United States and China regarding economic, energy, and defense policies. The Federal Reserve's historic drop in reserve levels, a major arms deal between the U.S. and Japan, and China's plans for interest rate cuts are among the notable headlines. Furthermore, potential restrictions on Chinese unmanned aerial vehicles by the U.S. and China's pursuit of its economic growth targets continue to impact global dynamics.
Fed Reserves Drop Below $3 Trillion
The reserves of the U.S. Federal Reserve fell below the $3 trillion mark, reaching the lowest level since October 2020. Weekly data up to January 1 showed a decrease of $326 billion in the Fed's reserves, which totalled $2.89 trillion. This marks the largest weekly decline in the last two and a half years.
This decline reflects the effects of the Fed's balance sheet reduction policy and its decisions regarding the banking system. Experts emphasize that the implications of this reduction in reserves for market dynamics and the banking sector should be monitored closely.
U.S. Oil Sector Optimistic About Trump Administration Policies
U.S. oil sector executives anticipate a faster process for drilling permits on federal lands with Donald Trump’s potential return to the presidency. According to the Dallas Fed's energy sector survey for the fourth quarter of 2024, an increase in activity levels and a decrease in uncertainties were observed. The energy firms participating in the survey are optimistic that permitting processes will be expedited during Trump's administration.
One-third of executives from the 134 participating energy firms believe that these processes will significantly speed up within the next four years. These firms, operating in Texas, Louisiana, and New Mexico, expect the Trump administration to provide more support for the energy sector.
U.S. Approves $3.6 Billion Missile Sale to Japan
The U.S. Department of State has approved the sale of AIM-120D-3 and AIM-120C-8 medium-range air-to-air missiles, valued at $3.6 billion, to Japan. The agreement encompasses a total of 1,200 missiles as well as technical support and logistics services. The primary contractor for the sale will be RTX Corp.
The U.S. Defense Security Cooperation Agency (DSCA) stated that this sale aims to enhance Japan's defense capabilities and maintain the strategic balance in the region. The support services included in the agreement will strengthen U.S.-Japan defense cooperation.
U.S. May Impose Restrictions on Chinese Drones
The U.S. Department of Commerce is working on new rules to restrict or ban unmanned aerial vehicles from China. The department indicated that this step is motivated by national security concerns and the increased risk of sensitive U.S. data access from threats posed by China and Russia.
Planning to gather public input until March 4, the department is focusing on regulations for equipment originating from China and Russia. Previously announced in September, the emphasis was particularly on Chinese-manufactured drones and their software, chips, and equipment.
China's Central Bank Plans Interest Rate Cuts
The People's Bank of China (PBOC) announced that it may lower interest rates from the current 1.5% level by 2025. The bank intends to prioritize interest rate adjustments while diverging from its credit growth targets. This move is seen in the context of China’s interest rate reform program.
The bank, which last lowered the interest rate from 1.7% to 1.5% in September, stated that a new reduction would be considered at an appropriate time. Officials noted that this step would depend on market conditions and contribute to the reform process in the economy.
China's Economic Growth Target for 2024 Exceeded
Economists at Standard Chartered indicated that China may have completed its economic growth target for 2024 at the 5% level. They forecast an annual growth rate of 5.3% for the country during the October to December period, a rate above the previous forecast of 4.8%.
Recent data has highlighted a recovery in China's manufacturing and service sectors. The optimistic economic outlook suggests that China's growth momentum is being sustained.
China Will Face New Economic Challenges in 2025
Yuan Da, an official from China’s State Planning Organization, stated that the Chinese economy will confront numerous new challenges and difficulties in 2025. The official expressed that there is a wide range for macro policies in response to these challenges and that new initiatives will be supported.
Subsidy programs aimed at renewing durable consumer goods and large-scale equipment modernization will be among these supports. Additionally, there is an objective to increase ultra-long-term bond revenues.