Editorial | Hong Kong must find new growth areas amid uncertain US monetary policy
Divisive US Federal Reserve interest rate cut underscores why the city should not look too much to American interest rate cuts to bolster the economy
Thanks to the US-Hong Kong dollar peg, the Hong Kong Monetary Authority (HKMA) accordingly cut its base interest rate by a quarter of a percentage point to 4 per cent, the city’s lowest base rate since October 2022. But to protect their margins, the six big banks in the city are keeping their prime lending and savings rates unchanged. This means the US rate cut won’t offer any short-term benefits to local mortgage holders and other borrowers.
But the more significant aspect of the Fed’s decision was that it was made in a highly divisive context, both within the American central bank itself and domestic politics under US President Donald Trump. It is this growing uncertainty about the future direction of US monetary policy that HKMA chief executive Eddie Yue Wai-man has warned against.
Of the 12 voting members on the Federal Open Market Committee, three voted against the cut. Of these, two wanted to keep rates unchanged and one wanted a larger cut. Latest projections by the US Fed on interest rates also offer little internal consensus.
But the real question is who will replace the outgoing Fed chairman Jerome Powell, against whom Trump has repeatedly expressed outright hostility. Whoever becomes the next head of the world’s most powerful central bank is expected to be friendly to Trump, leading to concerns about the Fed’s long-standing institutional independence from political interference. This is despite or because of Trump’s reputation for being market-friendly.