Possibility of a 0.50 percentage point increase at the FOMC in May
Park Jong-seok, Deputy Governor of the Bank of Korea “It is hawkish, but it does not deviate significantly from expectations”
Fed Chairman Jerome Powell. [Photo Yonhap News]
While the US Federal Reserve has raised the benchmark interest rate for the first time in over three years as expected, some are predicting that the US key rate hike could be faster as a hawkish signal is emerging. The Bank of Korea held an inspection meeting and decided to strengthen market monitoring.
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The dot plot shows interest rate hikes changed from 3 times to 7 times.
The US FOMC decided on the 16th to raise the target range for the policy interest rate by 0.25 percentage points. The US rate hike is the first in three years and three months since December 2018.
In this policy decision, the phrase related to the impact of the pandemic and the future economic path in the background of the policy rate decision was deleted, but changed to the phrase related to the impact of the Russian invasion of Ukraine.
In the economic forecast, the economic growth rate for 2022 was greatly downgraded from 4.0% to 2.8%, and the inflation rate was raised from 2.6% to 4.3%.
The appropriate policy rate for the end of 2022 is suggested by a majority of Fed members at 1.75% to 2.0%. Assuming that the rate is increased by 0.25%, it will be raised 7 times. Previously, it was presented three times.
Regarding the results of the FOMC, major global investment banks evaluated that the policy rate hike was in line with expectations, but on the dot chart, the forecast for a rate hike in 2022 was revised up significantly from 3 to 7 times, which was more hawkish than expected.
However, the S&P 500 closed 2.2% higher on the New York Stock Exchange on the back of progress in negotiations between Russia and Ukraine, hopes of easing inflation in the future, and Federal Reserve Chairman Jerome Powells strong confidence in the economy. The yield on the 10-year U.S. Treasury rose 0.04 percentage points, and the US dollar fell 0.7 percent.
At a press conference after the meeting, Chairman Powell emphasized that “we will take all possible measures to stabilize prices so that high inflation does not settle while devaluing concerns about a recession,” raising the possibility of an earlier rate hike.
Goldman Sachs predicted that there is a possibility that the US Federal Reserve will raise the key rate by 0.50 percentage points in May, as seven of its members expect rate hikes more than seven times this year.
During a press conference, Chairman Powell suggested that the FOMC was hawkish, noting that he did not deny the possibility of a 0.50 percentage point increase at a time and that he had made considerable progress in terms of quantitative reduction.
In response, Morgan Stanley said, “Fed members have shown that they are strongly committed to stabilizing inflation through an early rate hike and that interest rates above the long-term equilibrium rate are possible if necessary.”
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BOK holds FOMC interest rate hike review meeting
Meanwhile, the Bank of Korea held a situation check meeting presided over by Deputy Governor Jong-seok Park at 8 am on the 17th to examine the international financial market situation and the impact on the domestic financial & #8231; foreign exchange market according to the FOMC results.
Deputy Governor Park Jong-seok said, “The results of the FOMC meeting were evaluated as somewhat hawkish, but they did not deviate significantly from market expectations.
However, it is judged that the acceleration of monetary policy normalization of major countries in the future, the development of the Ukraine-Russian war, and disruptions in the global supply chain may have insignificant effects on the domestic financial market and the overall real economy, including growth and inflation.
Deputy Governor Park urged “close monitoring of this.”
