US Interest Rate Hike Moved Up by One Year... Tapering Discussions

Fed Announces Interest Rate Hold
Dot Plot Predicts Two Rate Hikes in 2023
Powell Admits "Discussed Tapering"

On the morning of the 17th, a foreign exchange dealer is working while watching news related to the U.S. Federal Reserve in the dealing room of the Hana Bank headquarters in Euljiro, Jung-gu, Seoul.
[Image source=Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. central bank, the Federal Reserve (Fed), has indicated that it may raise interest rates within 2023. The Fed is also beginning discussions on tapering asset purchases, signaling a full-scale move to accelerate the timetable for normalizing monetary policy. As the Fed revealed its 'hawkish claws,' U.S. Treasury yields rose sharply and the dollar strengthened on the day.

On the 16th (local time), following the Federal Open Market Committee (FOMC) regular meeting, the Fed announced in a statement that it would keep the benchmark interest rate unchanged at 0.00?0.25%. However, market attention was focused on the 'dot plot.'

The dot plot, which shows Fed officials' projections for future interest rates, forecasted two rate hikes in 2023. Compared to the March dot plot that suggested a rate hike in 2024, the timetable has been moved up by a full year.

According to the dot plot, the median target for the benchmark interest rate at the end of 2023 is 0.6%. Considering the current median is 0.1%, this implies the possibility of two 0.25% rate hikes.

The Fed has also started discussions on tapering. Although the statement did not mention tapering, Fed Chair Jerome Powell acknowledged at the press conference that "there was discussion about whether to discuss tapering."

On the day, the Fed raised its economic growth forecast for this year from 6.5% to 7%, while maintaining the unemployment rate forecast at 4.5%. Inflation for this year was assessed at 3.4%, which is 1.0 percentage point higher than the March forecast of 2.4%.

This level is significantly above the Fed's target of an average 2%. However, the Fed once again emphasized that inflation is temporary.