The results of a study published by the Federal Reserve Bank of New York showed that the Chinese government's efforts to stimulate production and the economy against the backdrop of a downturn in the real estate market could significantly increase inflationary pressure in the United States and delay the start of the Fed's interest rate cuts.
The Federal Reserve Bank of New York reported that over the past few years, credit flows to Chinese factories have increased sharply amid efforts by the authorities, who tried to compensate for the reduction in lending to the real estate sector. "In general, the rhetoric of Chinese leaders has changed when they discuss industrial policy. The new approach could accelerate China's economic growth above the pace of the last two years, at least in the short term," the New York Fed economists said, adding that if economic growth does accelerate, increased demand from Chinese manufacturers is likely to lead to higher prices for commodities and intermediate goods and lead to to the weakening of the dollar, which in turn may cause an increase in inflation in the United States.
Economists at the Federal Reserve Bank of New York said their findings "contradict the obvious conventional wisdom that expanding production in China will have a deflationary effect on the United States". "Although the prices of Chinese manufactured goods are likely to fall because there will be more of them, this will be outweighed by other effects such as an increase in the cost of goods," the economists warned.