U.S. Fed raises key interest rates again 0.25bp…
The interest rate gap between Korea and the U.S. is now a historical
size of 1.75bp
Fed raises key interest rates again 0.25%p…
Interest rate gap between
Korea and the U.S. is now a historical size of 1.75bp
interest rates 5.00-5.25%, the highest level in 16 years…
of Korea with more to worry regarding potential interest rate hike on the 25th
Fed: “Inflation is still high...
additional strengthening policies, considering cumulative tightening”
regard to room for leaving them unchanged,
Powell draws the line, saying,
“Inflation will not go down quickly...
rate reductions are inappropriate”
U.S., which is still suffering from pressures stemming from rise in prices, has
raised key interest rates to a small extent amidst financial market
However, implying the
possibility of suspending interest rates hikes, which have continued for over a
year, the Fed encouraged expectations that interest rates might be left
unchanged at the next meeting for interest rate decision planned for mid next
May 3 (local time), the U.S. Federal Reserve Board (“the Fed”)
released a statement immediately after the regular meeting of the Federal Open Market Committee
(“the FOMC”) and announced that key interest rates would be raised again 0.25bp.
easing somewhat, inflation, which is not easy to tackle, has now been subject
to “baby steps”(0.25bp
raise of key interest rates per meeting) three times in a row.
As a result, U.S. key interest
rates, which are currently 4.75-5.00%, have risen to 5.00-5.25%.
With the addition of the May
raise, since March of last year, the Fed has raised interest rates 10 times in
a row, and U.S. key interest rates have become the highest in 16 years since
interest rate raise on this day was decided upon unanimously by the FOMC members.
ceiling of U.S. key interest rates rose up to 5.25%, and now the gap in
interest rates with Korea is as much as 1.75bp, which is the greatest in
history. Concerns have been created about a negative impact on the Korean
economy due to capital outflows.
Bank of Korea, which froze interest rates last month, is expected to fall into
deep thought over whether or not it will raise key interest rates at the last
Monetary Policy Board of the first half of this year planned on May 25.
a statement, the Fed remarked, “Economic
activity expanded at a smooth pace in the first quarter.””During the past couple of months, the growth of
jobs has been solid, and the unemployment rate has stayed at a low level.
Inflation is still high,”
It then went on to reveal the
reason for the interest rate hike by saying, “The strict credit situation of
the household and corporate sectors can possibly reduce the burden on economic
activity, employment and inflation. The degree of impact is still uncertain…The
Fed is very wary of inflation risk.”
In regard to financial market
uncertainty due to the failure of certain banks, it sent a message of
confidence, saying “The U.S. banking system is healthy and flexible.”
Previously, the Fed raised key
interest rates in March of last year 0.25bp, effectively ending the age of zero
interest rates that had been maintained since the COVID-19 pandemic outbreak in
With the Ukranian War and
effects from the collapse in the supply chain and other factors, prices rose
rapidly, and in May of last year, the Fed raised interest rates 0.5bp, while in
June, July, September and November, they took bold “giant steps” (0.75bp raise
of interest rates per meeting) four consecutive times to rein in inflation.
Thereafter, as the rise in
prices began showing signs of alleviating, the Fed began adjusting its speed by
reducing the extent of their hikes. In December of last year, it raised
interest rates 0.50bp, and in February and March of this year, 0.25bp
The most recent announcement
of an interest rate hike on this day can be interpreted as the result of the
reflection of the Fed’s awareness that, despite concerns over an economic
recession pursuant to interest rate hikes, responding to inflation is the first
and foremost task.
The Personal Consumption
Expenditures Price Index (PCE), the price indicator that the Fed mostly refers
to, rose most recently in March 4.2% compared to the same month of the previous
year, and 0.1% compared to the previous month, respectively. Thus, the rising
trend was less stark, but the number still far exceeded the Fed’s price target
The Employment Cost Index
(ECI) of the first quarter of this year also rose 1.2% compared to the previous
quarter. The rise in wages as of the end of March compared to the same month of
the previous year is 5.0%, which is still high.
These indicators imply that
inflation can be more prolonged than expected.
However, the Fed mentioned
that “In determining whether additional policy strengthening is appropriate to
return inflation to (the Fed’s target of) 2%, the Fed shall take into
consideration cumulative tightening of monetary policy, and the time lag
required for monetary policy to impact economic activity, inflation and
This was inserted instead of the
wording of the March FOMC statement of “a little extra policy reinforcement is
expected to be appropriate”, and is interpreted as leaving room for letting
future interest rates remain unchanged.
The Washington Post made the
analysis that “This is an implication that there will be no further interest
rate hikes,” while Thomson Reuters said “This is a sign that there will be no additional
However, at a press
conference, Jerome Powell Chairman of the U.S. Federal Reserve Board remarked, “No
decision on leaving interest rates unchanged was made today,” and left things
unanswered despite market expectations.
Rather, he drew the line on
the possibility of interest rate cuts, saying “The FOMC members hold the
opinion that inflation will not go down fast…Resolving inflation will take some
time, and if such an observation is correct, interest rate cuts are
In a statement, the Fed said, “If
risks appear that have the potential to interfere with the attainment of our
goals, we are ready to adjust our monetary policy basis as appropriate…We shall
take into consideration a broad range of information including the labor market
situation, inflationary pressure, expected inflation, financial/international
With these recent measures by
the Fed, the gap between the key interest rates of Korea and the U.S. has
widened to 1.50-1.75bp.
Despite the ongoing interest
rate hikes of the U.S., the Bank of Korea’s Monetary Policy Board left key interest
rates unchanged (3.50%) as recently as last month, and maintained the largest
interest rate difference with the U.S. in 22 years. With the interest rate
hikes just announced by the U.S. this month, the difference has expanded to the
largest in history.
This means that the likelihood
of foreign capital outflow in search of high profits and the potential drop in
the value of the Korean Won (i.e. rise in won/dollar currency rate) has grown.
(Provided by Newsys)