Fed Restarts Rate Hikes Alongside Balance-Sheet Runoff as China's Central Bank Cuts Rates 'On Its Own Terms' — Possibly by Changing Its Policy Anchor - BigGo Finance

The world's two largest central banks are now moving in opposite directions. The Federal Reserve has resumed raising interest rates while continuing to shrink its balance sheet—a combination that withdraws liquidity on two fronts at once. Higher policy rates raise borrowing costs across the economy, while balance-sheet runoff reduces the reserves held in the financial system. Together, they represent a more restrictive stance than either tool would deliver alone.

Meanwhile, China's central bank is easing, and reports suggest it intends to do so "on its own terms," possibly by adjusting the policy anchor it uses to guide market rates. That phrasing matters: it hints at a technical change in how Chinese rates are set, rather than a simple mirror-image of Fed moves.

For markets, the divergence is the story. A widening rate gap between the US and China can influence currency and capital-flow dynamics, and shifts in China's policy framework may alter how its domestic rates respond to future stimulus. The key things to watch are the pace of Fed tightening, the size of balance-sheet runoff, and any formal change to China's policy anchor—each could affect global liquidity conditions.