Core Viewpoint - The potential for a rate cut by the Federal Reserve in September could lead to a corresponding decrease in China's Loan Prime Rate (LPR) on September 22, which would further lower domestic mortgage rates [1]. Group 1: Federal Reserve and Economic Policy - Trump is dissatisfied with Fed Chair Powell's reluctance to cut rates quickly, which he believes is necessary to boost the economy ahead of the midterm elections [2]. - The independence of the Federal Reserve is traditionally upheld, making it unprecedented for a president to demand the removal of a Fed chair, which could undermine international confidence in dollar assets [3]. - The resignation of Fed Governor Kugler provides Trump an opportunity to nominate a new member, potentially influencing future monetary policy [5][9]. Group 2: Implications for Monetary Policy - Trump's ability to nominate a "shadow chair" allows him to exert influence over the Fed without direct confrontation with Powell [8]. - The upcoming decisions by Trump regarding the new Fed governor and the implications for U.S.-Russia relations could significantly impact global markets [13][14]. - Current employment data suggests a high probability of a rate cut in September, with discussions around whether it will be 25 or 50 basis points [18]. Group 3: China's Monetary Policy Outlook - The LPR is expected to decrease by 10 to 15 basis points in September, with further cuts anticipated by the end of the year, depending on the Fed's actions [23]. - The LPR has been on a downward trend, with only one cut of 10 basis points in May this year, indicating a cautious approach to monetary easing [21][23]. - By 2026, there is a potential for more significant cuts in China's LPR, as the Fed may implement aggressive rate reductions, allowing for greater flexibility in China's monetary policy [23].

Core Viewpoint - The current trend of the RMB exchange rate, with a slight appreciation in financial rates and a significant depreciation in trade rates, is deemed appropriate for stabilizing cross-border capital flows and promoting exports [2]. Group 1: RMB Exchange Rate Characteristics - The RMB experienced a sudden depreciation shock due to increased tariffs, with the onshore rate touching 7.35 and offshore rate reaching 7.4295 in early April [4]. - Despite a significant depreciation of the USD by over 9% from the beginning of the year to April 21, the RMB only appreciated by 0.8% onshore and 1.3% offshore, indicating unexpected stability [5]. - The onshore and offshore markets have shown good linkage, with a minimal average difference of only 3 basis points, which supports exchange rate stability [5]. - The RMB trade rate has depreciated significantly, with the CFETS index down 5.2% and the BIS currency basket down 4.8%, while the financial rate against the USD only appreciated by 0.5% [5]. Group 2: Factors Influencing RMB Exchange Rate - Key factors affecting the RMB exchange rate include tariffs and trade surplus, with a notable trade surplus of 2.64 trillion yuan in the first four months of the year despite increased tariffs [6]. - The inverted yield curve between China and the US has been significant, with a current inversion of around 260 basis points, which is expected to persist due to differing monetary policies [6][8]. - Cross-border capital flows have remained stable, with a net inflow of 51.7 billion USD in the first quarter, supported by policies aimed at stabilizing asset prices [6]. - The exchange rate pricing mechanism has shown a systematic slight positive bias, which is crucial for stabilizing expectations [7]. - Foreign exchange reserves increased by over 40 billion USD in April, contributing positively to exchange rate stability [8]. - A proactive fiscal policy has been implemented, with a completion rate of 24.5% for the annual budget in the first quarter, which is higher than in previous years [8]. - The financial package announced on May 7 includes interest rate cuts and liquidity releases, which are aimed at stabilizing asset prices and cross-border capital flows [8]. Group 3: Future Outlook and Policy Responses - Future RMB exchange rate movements will be influenced by US tariffs and interest rates, with a focus on economic fundamentals [9]. - If the US economy faces significant pressure and interest rates are cut substantially, the RMB may experience upward pressure [10]. - Maintaining stability in the RMB/USD exchange rate is crucial for managing uncertainties and supporting exports, while also ensuring stable cross-border capital flows [10].