Core Viewpoint - The article discusses the expected slight appreciation of the RMB against the USD in 2026, with a projected range of 6.8-7.2, influenced by both internal and external factors [2][17]. Group 1: USD Index Decline - The USD index ended its strong upward trend in 2025, declining from 108.4816 to 98.5859, a drop of 9.1% [2][3]. - Major currencies such as the Swedish Krona, Euro, Swiss Franc, British Pound, Japanese Yen, and Canadian Dollar appreciated against the USD by 15.1%, 12.6%, 12%, 7.3%, 3.4%, and 3% respectively during the same period [2]. Group 2: Factors Behind USD Index Decline - The decline in the USD index is attributed to several factors, including the initiation of a new "tariff war" by the Trump administration, increased uncertainty regarding Fed rate cuts, and rising risks associated with US Treasury bonds [3][4]. - The "tariff war" has undermined global confidence in USD assets, exacerbating trade tensions and leading to a shift in investor sentiment towards safer assets like gold [4]. - The tariff measures have also increased inflationary pressures in the US, complicating the Fed's policy decisions and potentially leading to capital outflows [4][5]. Group 3: Fed Rate Cut Uncertainty - Since September 2024, the Fed has entered a new rate cut cycle, with increasing uncertainty regarding future monetary policy due to the Trump administration's policies and personnel changes at the Fed [6][7]. - The Fed's updated monetary policy framework emphasizes flexible inflation targeting and the balance between maximum employment and price stability, contributing to market uncertainty regarding rate cuts [9]. Group 4: US Treasury Risks - Concerns over US Treasury bond risks have intensified, particularly following the passage of the "Big and Beautiful Act," which raised the debt ceiling by $5 trillion, increasing the national debt and associated risks [11]. - The downgrade of the US credit rating by major agencies has further eroded investor confidence in US Treasuries [11]. - A structural shift in the investor base, with foreign official investors reducing their holdings of US Treasuries, has led to increased volatility in the bond market [12]. Group 5: RMB Exchange Rate Analysis - The RMB appreciated slightly against the USD in 2025, with the central parity rising from 7.1884 to 7.1055, an increase of 1.2% [17]. - The RMB's exchange rate is influenced by both external factors, particularly the USD index, and internal policies aimed at stimulating consumption and economic growth [18]. - The RMB is expected to continue appreciating slightly in 2026, with a projected range of 6.8-7.2, as internal and external factors converge [17][18].

Core Viewpoint - The article discusses the implications of the United States' massive national debt, which is approaching $35 trillion, and the potential strategies proposed by the Trump administration to address trade deficits and debt management, particularly in relation to China, the largest foreign holder of U.S. debt at approximately $750 billion [1][3][5]. Group 1: U.S. Debt and Economic Strategy - The U.S. economy appears strong on the surface but harbors significant vulnerabilities, including a record trade deficit with China projected to exceed $300 billion in 2024 [3][5]. - The Trump administration is considering a new version of the Plaza Accord to manipulate currency values and adjust trade balances, aiming to devalue the dollar to improve export competitiveness [3][5]. - A proposal suggests converting short-term U.S. debt into 100-year zero-coupon bonds, effectively deferring interest payments and potentially harming foreign holders of U.S. debt [5][7]. Group 2: China's Response and Strategy - China holds a substantial amount of U.S. debt, approximately $750 billion, and has been gradually reducing its holdings in favor of diversifying into gold and other assets [7][9]. - The proposed agreements could lead to a significant appreciation of the yuan against the dollar, reminiscent of Japan's experience post-Plaza Accord, which resulted in economic stagnation [7][9]. - Chinese officials have expressed strong opposition to any agreements that would involve debt restructuring or long-term bonds, citing historical precedents and the risks involved [9][10]. Group 3: Global Reactions and Implications - The international community has reacted with skepticism to the proposed strategies, with warnings from European and Japanese officials about potential market instability and the risks of a sell-off in U.S. debt [10][11]. - The article highlights the challenges of implementing a new Plaza Accord in the current geopolitical climate, where U.S.-China tensions complicate multilateral cooperation [10][13]. - The overall sentiment suggests that the U.S. strategy may backfire, leading to a loss of confidence in the dollar and further complicating the global economic landscape [10][13].

Group 1: Background of the Fed's "Third Mission" - The Federal Reserve's "third mission" of promoting moderate long-term interest rates was established in the 1977 Federal Reserve Act but has been largely overlooked in recent discussions[5] - On September 3, 2025, new Fed Governor Stephen Milan's reference to the "third mission" during a congressional hearing led to significant market reactions, with 10-30 year Treasury yields dropping by approximately 30 basis points[2][8] - Milan argues for a substantial rate cut, suggesting that the appropriate policy rate should be lowered from 4.26% to 2.49% based on non-monetary factors like rent and trade policies[16][13] Group 2: Central Bank Intervention Experiences - Historical interventions by central banks (US, Japan, Eurozone) typically occur during major economic crises, primarily to alleviate liquidity issues and create a low-interest environment[22] - Tools for controlling long-term bond rates include lowering policy rates, forward guidance, asset purchases, and balance sheet adjustments, with asset purchases showing the most significant effectiveness[22] - While these interventions can reduce fiscal costs, they also carry risks such as potential high inflation, asset price distortions, and conflicts between monetary and fiscal authorities[23] Group 3: Controversies Surrounding the "Third Mission" - There is debate over how to define "moderate" long-term interest rates, with estimates of the neutral rate varying widely[3] - The effectiveness of the "dual mandate" in achieving the "third mission" is questioned, especially as current long-term bond yields appear higher than what is considered moderate[3] - Concerns exist regarding whether lowering bond yields could lead to higher inflation, reflecting a conflict between monetarist views and the Fiscal Theory of the Price Level (FTPL)[3] Group 4: Market Implications of Practicing the "Third Mission" - In the short term, discussions around the "third mission" may trigger expectations of monetary easing, thereby lowering medium to long-term bond yields[2] - The actual impact on long-term yields remains uncertain and is contingent on future inflation trends and fiscal policies in the US[2] - The implementation of the "third mission" could weaken the Fed's independence and contribute to a narrative of "de-dollarization," potentially leading to a weaker dollar and benefiting gold and non-US assets[2]

Core Viewpoint - The relationship between the Federal Reserve and the U.S. Treasury is once again a focal point of power struggle, reminiscent of historical tensions, particularly in light of recent political actions and economic pressures [1][5]. Historical Context - The Federal Reserve was under the control of the Treasury until the "Treasury-Fed Accord" in March 1951, which restored its independence and established the foundation for modern central banking in the U.S. [1][3]. - During World War II, the Fed agreed to keep short-term Treasury bill rates at 3.8% and long-term bond rates at 2.5% to assist in war financing, leading to increased money supply and loss of control over its balance sheet [2]. Recent Developments - Former President Trump announced the dismissal of Federal Reserve Governor Lisa Cook, citing alleged mortgage fraud, which she has contested in court, potentially impacting the Fed's independence [1][4]. - Trump's nomination of Stephen Milan as a new Fed governor and the ongoing investigation by the Justice Department into Cook's allegations highlight the current political pressures on the Fed [1][4]. Proposed Economic Strategies - Milan's "Mar-a-Lago Agreement" suggests radical measures to enhance U.S. export competitiveness, including forcing foreign governments to convert U.S. debt into long-term bonds and implementing aggressive financial policies [4]. - Critics argue that these strategies could disrupt the global financial system and represent a regression to political manipulation of the Fed, contrasting sharply with the independence established in 1951 [4][5]. Future Implications - The current situation presents a crossroads for the U.S., weighing the importance of institutional independence and market trust against the pressures of managing national debt [4][5].

Core Viewpoint - Citi suggests that the $550 billion investment fund involved in the US-Japan tariff agreement may lead to a form of a bilateral "mini Mar-a-Lago agreement," which could weaken the dollar and strengthen the yen [1] Group 1: Investment Fund and Currency Implications - Japan's planned $550 billion investment in the US is likely to heavily rely on its $1.3 trillion foreign exchange reserves [1] - The investment fund established under the tariff agreement is expected to invest in US assets with maturities of 10-20 years, contrasting with Japan's current holdings of US Treasury bonds, which have an estimated duration of 3-5 years [1] - If Japan sells short-term US Treasuries to finance this long-term investment fund, it may lead to an increase in US long-term bond yields [1] Group 2: Bilateral Coordination and Market Stability - The potential for high-level bilateral coordination to address market volatility is the basis for what Citi refers to as the "mini Mar-a-Lago agreement" [1] - Citi analysts believe that there will be a persistent tendency for the dollar to weaken and the yen to strengthen from a monetary policy perspective [1] Group 3: Yen Performance Context - This expectation contrasts sharply with the recent weak performance of the yen, which has been the worst-performing major currency over the past three months due to political uncertainty and tariff issues affecting the Bank of Japan's rate hike path [2]

Core Viewpoint - Citi believes that the $550 billion investment fund involved in the US-Japan tariff agreement may lead to a form of a bilateral "mini Mar-a-Lago agreement," which could drive a weaker dollar and a stronger yen [1][2] Group 1: Investment Fund and Currency Implications - Japan's planned $550 billion investment in the US is likely to heavily rely on its $1.3 trillion foreign exchange reserves [1] - The investment fund established under the tariff agreement is expected to invest in US assets with maturities of 10-20 years, contrasting with Japan's current holdings of US Treasury bonds, which have an estimated duration of 3-5 years [1] - If Japan sells short-term US Treasuries to finance this long-term investment fund, it could lead to an increase in US long-term bond yields [2] Group 2: Bilateral Coordination and Market Stability - To stabilize the market, the US may pressure Japan to extend the duration of its US Treasury holdings when managing its foreign exchange reserves [2] - This high-level bilateral coordination to address potential market volatility is the basis for what Citi refers to as the "mini Mar-a-Lago agreement" [2] - From a monetary policy perspective, there is an expected ongoing trend of a weaker dollar and a stronger yen, which contrasts sharply with the recent weak performance of the yen due to political uncertainties and tariff issues affecting the Bank of Japan's rate hike path [2]

Group 1 - The Senate Banking Committee has scheduled a confirmation hearing for Stephen Milan, the current Chair of the White House Council of Economic Advisers, to become a Federal Reserve Governor on September 4 at 10 AM local time [1] - The Republican-led Senate is expected to expedite Milan's confirmation process before the Federal Reserve's interest rate decision meeting in September, barring any procedural hurdles or unexpected opposition [2] - Milan's nomination is a priority for Senate Majority Leader John Thune, with hopes for approval before the Federal Open Market Committee meeting on September 16-17 [2] Group 2 - Milan previously passed a Senate confirmation vote for his current position with a party-line vote of 53 in favor and 46 against, without any Republican opposition [2] - Despite lacking the votes to block his nomination, Milan is anticipated to face tough questioning from senators regarding recent actions by President Trump, including the firing of Fed Governor Cook and pressure to lower interest rates [3] - If confirmed before the Fed's September meeting, Milan's presence could increase the likelihood of interest rate cuts, as he may align with other governors to advocate for more aggressive rate reductions [3]

Core Viewpoint - Trump's nomination of Stephen Miran to the Federal Reserve Board is seen as a significant move to reshape the Fed's leadership and align it more closely with his economic agenda, particularly in advocating for lower interest rates and financial deregulation [2][4][17]. Summary by Sections Nomination Announcement - Trump announced the nomination of Stephen Miran to fill the vacancy left by Adriana Kugler's resignation from the Federal Reserve Board [2][3]. Background of Stephen Miran - Miran is praised by Trump for his unparalleled expertise in economics and has been a close advisor since Trump's second term began [3]. - He is known for his influential "Mar-a-Lago Accord" paper advocating for a lower long-term value of the dollar and has publicly questioned the independence of the Federal Reserve [4][5]. Views on Federal Reserve - Miran has criticized the Fed's flexible inflation targets and warned that failure to manage inflation could lead to legislative changes to the Federal Reserve Act or the dismissal of board members by future presidents [6]. - He has also pointed out that the Fed's policies have created market expectations for aggressive easing in response to economic downturns [7]. Proposed Reforms - Miran has co-authored a report suggesting radical reforms for the Federal Reserve, including: - Granting voting rights to all Fed officials at every FOMC meeting [8]. - Allowing state governors to control local oversight committees for selecting regional Fed presidents [9]. - Permitting the White House to dismiss Fed officials at any time [10]. - Prohibiting board members from taking executive branch positions for four years after their term [11]. - Requiring Congress to allocate the Fed's operating budget [12]. Market Reactions - Wall Street's reaction to Miran's nomination is mixed, with some investors viewing it positively for potential rate cuts, while others express concerns about his qualifications and political stance [13][14]. - Analysts generally believe that Miran's nomination will not alter expectations for an upcoming rate cut by the Fed [14]. Implications of the Nomination - If confirmed, Miran will serve until the end of January, with limited opportunities to influence rate decisions [16]. - His nomination is seen as the beginning of Trump's long-term plan to reshape the Fed, introducing a strong "MAGA perspective" into the FOMC [17].

Group 1 - President Trump has officially nominated Stephen Miran to replace Adriana Kugler on the Federal Reserve Board, following Kugler's unexpected resignation [1][2] - Miran is expected to complete Kugler's remaining term, which was originally set to end on January 31, 2026 [1] - The Senate must approve all Federal Reserve nominees, and there are indications that the confirmation process may be delayed due to the Senate's recess and Democratic efforts to slow down Trump's nominations [2] Group 2 - Stephen Miran has a strong background in economics, having previously served as a senior economic policy advisor at the Treasury during Trump's first term and currently chairs the White House Council of Economic Advisers [4] - Miran is known for his influential "Mar-a-Lago Agreement," advocating for measures such as currency devaluation and debt restructuring to address U.S. economic issues [4] - He has publicly questioned the independence of the Federal Reserve and supports significant reforms within the institution [4]

Core Viewpoint - Trump's nomination of Stephen Miran is seen as the beginning of a long-term plan to reshape the Federal Reserve, potentially undermining the authority of current Chairman Jerome Powell [1][15]. Group 1: Nomination Details - Trump officially nominated Stephen Miran to fill the vacant Federal Reserve Board seat left by Adriana Kugler's resignation, praising Miran's unparalleled expertise in economics [3]. - Miran's nomination is viewed as a significant step in Trump's efforts to reform the Federal Reserve leadership during his second term [4][15]. Group 2: Miran's Policy Views - Miran has publicly questioned the independence of the Federal Reserve and advocates for radical reforms, including allowing all Federal Reserve officials to vote at every meeting and granting the White House the power to dismiss central bank officials at any time [4][7]. - He is known for his influential "Mar-a-Lago Accord," which argues for measures to lower the long-term value of the dollar [5][6]. Group 3: Market Reactions - Wall Street's reaction to Miran's nomination is mixed, with some investors believing it could be beneficial for the market, while others express concerns about his qualifications and political stance [12]. - Analysts generally agree that Miran's nomination is unlikely to change expectations for an upcoming interest rate cut by the Federal Reserve [13][14]. Group 4: Implications for the Federal Reserve - If confirmed, Miran will serve until the end of January, with limited opportunities to influence rate decisions, especially given the high likelihood of a rate cut in September [14]. - His appointment is interpreted as a significant symbolic move, introducing a strong "MAGA perspective" into the Federal Open Market Committee, indicating a potential shift in the operational and policy discourse of the Federal Reserve [15].