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economic observer editorial at 2:00 a.m. beijing time on september 19, the federal reserve cut interest rates by 50 basis points, which was more than expected. the day after the rate cut, global risk assets rebounded sharply, and the rmb exchange rate rose strongly, with the offshore usd/rmb exchange rate once exceeding 7.06.

as the federal reserve begins a cycle of interest rate cuts, the interest rate gap between china and the united states is expected to narrow, and the pressure of rmb depreciation and capital flow will also be alleviated. this has expanded the room for the people's bank of china to further adopt loose monetary policies such as interest rate cuts and reserve requirement ratio cuts. it can be expected that the central bank will take new actions in this regard in the coming period.

however, it should be noted that although the central bank's previous reduction in reserve requirement ratio and interest rate did reduce financing costs, corporate reproduction and investment demand are still weak, financial institutions' funds are piled up in the bond market, and the marginal effect of monetary easing policy is decreasing. therefore, monetary policy certainly needs to do something, but over-reliance on loose monetary policy cannot effectively boost domestic demand, and the market has a basic consensus on this.

lack of confidence and weak domestic demand are the crux of the current economy, and systematic and innovative policy tools are urgently needed to address them. we believe that only by relying on strong fiscal policies and supporting reform measures can the endogenous driving force of the economy be stimulated.

since the beginning of this year, the domestic economy has been running smoothly and making steady progress. however, some economic and financial data indicators in august fell short of market expectations, and the continued economic recovery still faces challenges.fixed asset investmentthe year-on-year growth rate was 3.4%, down 0.2 percentage points from the previous seven months, and the growth rate of private investment decreased by 0.2%; the total retail sales of consumer goods in august increased by 2.1% year-on-year, down 0.6 percentage points from the previous month; the added value of industrial enterprises above designated size increased by 4.5% year-on-year, down 0.6 percentage points from the previous month; and the year-on-year increase in rmb loans was about 460 billion yuan less. this shows that the domestic investment and consumption willingness still needs to be improved. at the same time, although the government has tried to boost confidence in the real estate market by reducing the down payment ratio and relaxing restrictions on home purchases, it will take time for the market to fully recover.

the central political bureau meeting at the end of july proposed that macroeconomic policies should continue to exert force and be more powerful. we believe that in order to achieve the various goals and tasks of economic and social development this year, the current period is the key period for macroeconomic policies to continue to exert force and be more powerful. in particular, fiscal policy should play a greater role. in the first half of the year, the issuance of special bonds slowed down, which increased the revenue and expenditure pressure of local finances and also constrained investment. "moderately increase efforts, improve quality and increase efficiency" has become the main tone of fiscal policy this year. this not only means accelerating the issuance of special bonds, but also requires ensuring that the flow of funds can bring actual benefits, especially in the field of infrastructure, to avoid the problem of low capital efficiency. in the future, policies should guide funds to innovation, green transformation and technological upgrading, promote the implementation of more innovative projects, and thus promote high-quality development. it is difficult to reverse the downward trend of the economy by relying solely on traditional infrastructure. policies should stimulate the vitality of private capital and attract it to enter industries with long-term development potential.

we have noticed that the market has high expectations for macroeconomic policies recently, such as calling for another reduction in the interest rate of existing mortgage loans, increasing the deficit ratio, and even directly issuing cash subsidies to residents and enterprises, etc. we believe that regardless of whether these suggestions are feasible, full communication between decision-makers and the market to explain their pros and cons should be conducive to guiding expectations.

the practice of reform and opening up has proved that the long-term development momentum of china's economy comes from a fair competition environment, transparent market rules, and the government's progress in reducing intervention and strengthening services. the fed's interest rate cut this time provides room for adjustment of china's macroeconomic policies, but the key to the steady and long-term development of china's economy is to do its own thing well. if the short-term policy is aimed at stabilizing the economy, china's economic climb and overcoming difficulties still depends on deepening institutional reforms and high-level opening up to the outside world.

everything is prepared, and nothing is prepared. looking inward means solving the complex problems in development through reasonable policy coordination and deepening reform, making innovators and entrepreneurs the backbone of the market, and making short-term policy stimulus gradually give way to deeper institutional innovation, thereby maximizing the release of market vitality. only in this way can a sustainable economic recovery be achieved.