Federal Reserve chair Jerome Powell surprised investors on Wednesday with slightly more hawkish than expected comments, as the bank decided to stand firm on its expected decision to raise interest rates and proceed with gradual hikes next year.

While policymakers lowered projections for rate hikes in 2019 to two from three, Powell indicated little acknowledgment of falling inflation forecasts, stressing the strength of the economy. During a press conference following the announcement, he dismissed recent stock market weakness as “a little bit of volatility.”

Beyond US stocks, the more hawkish than expected Fed also has implications for emerging markets, with central banks forced to contend with a stronger dollar.

While China has allowed the yuan to slide in response to US tariffs, Beijing must balance trade considerations with the need to provide monetary stimulus as the domestic economy slows.

If the US were to delay interest rate hikes, that gives China more flexibility in monetary policy. Lower long-term rates would help support the housing market and the rest of the economy.

RMB weakens

Stimulus policies unveiled

China’s central bank unveiled several policy changes on Wednesday aimed at injecting liquidity into the economy.

These include a new lending facility to encourage lending to small businesses, Chinese state media reported. Large commercial banks, joint-stock banks and commercial banks in major cities which demonstrate support for the real economy will be allowed to apply for the targeted medium-term lending facility.

Also on Wednesday, the central bank announced 180 billion yuan in reverse repos via interest rate tenders. The move was designed to “offset the impact of factors including the tax period, government bond issuance deposits and the payment of statutory reserves by financial institutions, in order to keep banking system liquidity rationally ample,” the central bank said.

In addition to monetary stimulus measures, China is relaxing housing market regulations, with a small fourth-tier city becoming the first location to lift a rule prohibiting the sale of houses within two years of purchase, Caixin reported.

China’s top economic planner on Wednesday also approved massive urban rail projects in two large eastern cities, in a reversal of efforts to restrict such projects and to reduce local government debt.

The new projects include six new subway lines for Shanghai, costing 300 billion yuan, as well as an expansion of rail lines in nearby Hangzhou to the sum of 14 billion yuan, China’s National Development and Reform Commission said.