Forget Yellen, the real Fed news is in China

On a day when Wall Street is in suspense over details of the Federal Reserve’s exit strategy, China’s central bank showed it isn’t going anywhere when it comes to stoking its slowing economy.

The People’s Bank of China overnight injected a fresh 500 million yuan, the equivalent of $81 billion, into its top five banks, in a bid to boost market liquidity and forestall further sluggishness in the country’s economic performance.

The global financial markets reflexively popped a bit higher on the move, with stocks in China rising by half a percent and commodity prices bouncing. The Shanghai stock market is up more than 15% since its March low despite generally soft Chinese economic numbers, so perhaps investors were already expecting further stimulative action.

Economists at Barclays point out that while this cash infusion is the equivalent of a half-percent cut in the short-term funding rate for banks, it appears a short-term measure to lubricate stressed lending markets rather than an all-out economic stimulus effort.

Still, as discussed in the attached video with Yahoo Finance anchor Milanee Kapadia, the PBOC’s efforts point out the opposing currents now at work among global central banks.

With the most central of central banks – the U.S. Fed – edging toward the end of a bond-buying spree and segueing toward a likely interest-rate hike next year, its counterparts in China, Europe and Japan have their monetary spigots wide open.

While in China the policy makers are hoping that it can eventually wean the economy off repeated rounds of easy money, for example, in Europe the deflationary threat is forcing the European Central Bank to become more aggressive.

This helps explain the recent pronounced strength in the U.S. dollar, which is responding to the fact that the American economy is on a decent footing and there’s a visible path toward higher rates (which would increase yield on dollar-based deposits).

So far, most developed financial markets have been able to remain fairly steady even as the major economies and central banks go their separate ways. Emerging-market currencies and stock markets, though, are under serious pressure, as more expensive dollars raise their debt burdens and increase the risk of capital fleeing.

Fed Chair Janet Yellen has been firm in her message that it is not running policy guided by stresses in emerging markets or elsewhere. Still, the fragile growth picture and global deflationary forces that are prompting easier monetary stances elsewhere could arguably give the Fed cover to go slower if it so chose.