Time is on the Federal Reserve's side—unlike the last time Chinese markets were in turmoil.
The People's Bank of China lowered the yuan's reference rate against the dollar by 0.5 percent on Thursday, the most since August moves that sent shock waves through global markets and helped to delay a then-anticipated September rate increase by the Fed. This week's action roiled equities and raised fresh questions about China's economic strength.
The central bank has more than two months to assess the fallout from China's latest financial upheaval, as investors expect a rate increase in March at earliest. Between now and then, market volatility could calm and U.S. strength could outweigh uncertainty from Asia. If the currency change is determined to be a signal of weakening Chinese growth, however, it could cause the dollar to rise and commodity prices to fall, exacerbating trends that have damped U.S. inflation and making it harder for the central bank to justify its median outlook for four interest-rate increases this year.
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