China Debt-Buying Rebalancing Should Be Manageable: Fed’s Kaplan
China’s reported review of foreign-exchange holdings, possibly slowing purchases of U.S. Treasuries, should not be a reason for major concern, Federal Reserve Bank of Dallas President Robert Kaplan said.
“There’s over 20 trillion of central bank liquidity in the world. And so China’s rebalancing, I think, ought to be manageable. We’ll have to be vigilant about it, but I think it will be manageable.”
Speaking in an interview with CNBC on Friday, Kaplan also said that his “base case” is still that the Fed will raise interest rates three times this year, stressing the need for the central bank to act “in a gradual way, but to continue to remove the accommodation.” He added that he sees economic growth for the U.S. between 2.5 percent and 2.75 percent this year.
Senior government officials in Beijing have recommended slowing or halting purchases of U.S. Treasuries, people familiar with the matter told Bloomberg News this week. The news came as global debt markets were already selling off amid signs that central banks are starting to step back after years of bond-buying stimulus. The report sent 10-year yields to their highest level in 10 months before recovering.
China holds the world’s largest foreign-exchange reserves, at $3.1 trillion, and regularly assesses its strategy for investing them.