The idea of taking out insurance against worst-case scenarios, mostly by cutting interest rates, became a popular choice among the world¡¯s big central banks over the past quarter century. Beijing has shunned this doctrine lately. It may come with a price.
The People¡¯s Bank of China recently downplayed concerns that the world¡¯s second-largest economy is in trouble. The PBOC¡¯s latest quarterly statement emphasized long-term prospects and discouraged investors from focusing on what it sees as merely short-term hurdles. Translation: Rein in those bets on rate cuts. Goldman Sachs Group was among those that got the message, pushing back its forecast for the next reduction to the first quarter of 2026. Other large institutions, including Citigroup, had already thrown in the towel.
It¡¯s natural that firms adjust projections to reflect what central banks are saying, as opposed to relying entirely on data for guidance. It has long been an article of faith in finance that you don¡¯t fight the Federal Reserve. It has too much firepower and, if officials want markets to see things their way, they can jolt traders through words and deeds.
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