---
title: "CICC: The risk of \"secondary effects\" is limited, and the probability of global central banks generally raising interest rates is low"
type: "News"
locale: "zh-HK"
url: "https://longbridge.com/zh-HK/news/280383629.md"
description: "CICC released a research report indicating that the current probability of global central banks generally raising interest rates is low, as inflation expectations in China, the United States, and Europe have not significantly spiraled out of control, and economic supply and demand are relatively balanced. Although rising oil prices have raised concerns about stagflation, market expectations for interest rate hikes by the Federal Reserve and the European Central Bank have reversed. Geopolitical risks may reduce market liquidity, leading to tighter financial conditions, particularly with a focus on the risk resonance of AI software and private credit in the United States"
datetime: "2026-03-24T23:54:02.000Z"
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  - [zh-CN](https://longbridge.com/zh-CN/news/280383629.md)
  - [en](https://longbridge.com/en/news/280383629.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/280383629.md)
---

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# CICC: The risk of "secondary effects" is limited, and the probability of global central banks generally raising interest rates is low

According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that the situation in Iran has further escalated recently, leading to a rise in oil prices, while concerns about stagflation in the US and Europe continue to intensify. Last week marked the "Super Central Bank Week," where the Federal Reserve, European Central Bank, and Bank of England collectively released hawkish signals, prompting investors to significantly adjust their expectations for monetary policy paths. The futures market now implies that the timing for the Federal Reserve's interest rate cuts has been pushed back to the second half of 2027, with some expectations of rate hikes even in 2026. The expectations for rate cuts from the European Central Bank and the Bank of England have also reversed to expectations of rate hikes. **The choice of central bank policy under the impact of oil prices is currently the core issue in global asset pricing, and the bank believes that there may be significant discrepancies in market pricing expectations.**

## CICC's main viewpoints are as follows:

**The importance of this round of oil price shocks to the Federal Reserve's decision-making may stem more from the fragility of financial markets rather than stagflation risks.**

Although the impact of oil prices on the macroeconomy has structurally weakened, and current inflation expectations in the US and Europe are not showing signs of runaway inflation, the uncertainty of geopolitical risks will still reduce market liquidity and risk appetite, leading to a significant tightening of financial conditions. According to Bernanke's "financial accelerator" theory, deteriorating financial market conditions can have a significant negative impact on the economy. Currently, it is especially important to pay attention to the risk resonance between US AI software and private credit, which could cause a double whammy.

US Treasury bonds are traditional safe-haven assets. After the geopolitical conflict, US Treasury yields should have fallen, but the yield on the 10-year Treasury bond not only did not decline after the Iran conflict but instead rose to 4.3%, reflecting a significant decrease in the "safe asset" attribute of US Treasuries.

Moreover, geopolitical conflicts can suppress risk appetite, potentially further amplifying the vulnerabilities of overvalued US financial assets. Over the past two years, there has been a dramatic structural change at the individual stock level in the US stock market, yet the volatility index (VIX) of the US stock market has remained low, which is behind the "creative destruction" of new enterprises against traditional companies under the AI revolution. Since 2026, the narrative of AI "disruptive innovation" has been further strengthened, and the market has begun to reassess the business models of US AI software. AI software is also highly tied to the US private credit industry, with nearly 30% of direct loans from Business Development Companies (BDCs) in US private credit directed towards the technology sector. If policy shifts towards tightening at this time, the US AI software industry may face dual pressures on cash flow and valuation, causing significant impacts on the AI bubble and the private credit industry. From this perspective, a substantial rise in oil prices may not necessarily cause a significant impact on the macroeconomy, but the financial risks triggered by a decline in risk appetite remain an important factor that the Federal Reserve must consider in its policy formulation.

**This year, the monetary policies of the central banks in China, the US, and Europe may ultimately trend towards easing, but the degree of easing may vary.**

Geopolitical issues have led to supply shocks, with inflation rising and growth declining simultaneously, putting central banks in a dilemma between "stabilizing growth" and "controlling inflation." Considering the lagging effects of monetary policy, if supply shocks only temporarily push up price levels without changing the long-term inflation baseline, an early or excessive response may actually exacerbate macroeconomic volatility.

What factors ultimately determine the success or failure of monetary policy in response to supply shocks? **The key may lie in whether rising oil prices will trigger a "second round effect."** \*\* The rise in oil prices leads to an increase in the prices of energy products in consumers' baskets, which is a first effect. The second effect, on the other hand, is the rise in core prices such as non-energy goods, services, and wages due to changes in oil prices beyond the first effect. The strength of the second effect is influenced by factors such as the intensity and duration of geopolitical conflicts, inflation status, inflation expectations, and labor market conditions. Once the central bank has established credibility, as long as oil prices do not lead to significant second effects, the "Attenuation Principle" can be adopted, allowing for "ignoring" short-term oil price fluctuations. Only when oil price fluctuations affect wages and other prices does monetary policy need to balance between stabilizing inflation and stabilizing output.

Currently, inflation expectations in China, the United States, and Europe have not significantly spiraled out of control, and the economic supply and demand are relatively balanced, so the risk of second effects remains limited. If the geopolitical situation does not escalate further, it is expected that monetary policies in China, the U.S., and Europe may eventually trend towards easing, with a low probability of global central banks generally raising interest rates.

China's supply chain is relatively more advantageous, with a diversified energy structure and sufficient strategic reserves, giving it a stronger ability to respond to rising crude oil prices. In a low inflation environment with low inflation expectations, insufficient domestic demand remains the main contradiction. When the income budget constraints of households and enterprises are tight, the upward shock of oil prices will increase energy expenditures, squeezing non-energy expenditures, similar to a "tax increase." At this time, monetary policy should not be passively tightened solely due to rising oil prices; rather, it should work in coordination with proactive fiscal policies to play a role similar to "tax cuts." Currently, the external supply shocks caused by global energy price fluctuations objectively provide a window to boost inflation expectations. If fiscal and monetary policies can coordinate and adapt to the situation, it will not only help break the "low inflation" negative cycle but also take this opportunity to transform cost-push input inflation into moderate re-inflation supported by demand. Considering that China's absolute inflation level is still relatively low, there are fewer constraints on implementing counter-cyclical adjustment policies, providing more operational space. It may be considered to increase counter-cyclical adjustment efforts in a timely manner, better promoting expectation recovery and improvement in domestic demand.

Rising oil prices may increase the risk of "temporary stagflation" in the United States, but since the U.S. has become a net exporter of crude oil since 2019, the current nominal CPI in the U.S. is 2.4% year-on-year, which has fallen to near the policy target. Therefore, the core risk of oil price shocks to the U.S. is not in growth, nor even in inflation. The real risk may lie in the financial markets. Therefore, it is expected that the threshold for significant tightening of the Federal Reserve's monetary policy is relatively high. If conflicts do not escalate significantly, the Federal Reserve may still restart interest rate cuts in the second half of the year, with a relatively dovish monetary policy orientation.

Although Europe has shown some energy resilience after the Russia-Ukraine conflict, it has severely damaged European cohesion and exacerbated structural issues such as wealth disparity, which is detrimental to the long-term integration process. Currently, growth in Europe remains weak, inflation is near policy targets, and the fundamentals do not support significant interest rate hikes. Considering that Europe still has a high overall dependence on external energy, the risk of "temporary stagflation" may be higher than that of the United States. The European Central Bank may be relatively hawkish under a single inflation target

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