US Interest Rate Hikes Expected Up to 7 Times... Domestic Rate Approaches 2%

Bank of America Raises Interest Rate Hike Forecast to 7 Times This Year
Domestic Rates Expected at 1.75~2%

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] As the U.S. Federal Reserve (Fed) is expected to raise interest rates up to seven times this year, attention is focusing on the pace of domestic base rate hikes. Initially, the Fed's rate hikes were forecasted to occur three to four times this year, but with expectations of more frequent increases, it is anticipated that the pace of domestic rate hikes will also be affected.

Eric Winograd, an economist at asset management firm AllianceBernstein, analyzed that the January Federal Open Market Committee (FOMC) meeting had a hawkish tone and, given that the Fed did not rule out raising rates at every upcoming meeting, there is a possibility of seven rate hikes. Bank of America (BofA) recently raised its forecast for rate hikes this year to seven times, and BNP Paribas also increased its projection to six hikes this year.

This year's regular FOMC meetings are scheduled for March, May, June, July, September, November, and December following the first meeting. If rates are raised at every meeting starting in March, a total of seven rate hikes could be possible. Previously, market analysts predominantly expected three to four rate hikes this year, but after the recent FOMC meeting, there is growing consensus that the Fed may pursue a more aggressive policy going forward.

The Bank of Korea is also closely monitoring the pace of the Fed's monetary policy. At a situation review meeting on the 27th of last month, Deputy Governor Park Jong-seok expressed willingness for additional rate hikes, stating, "As the Fed's monetary policy normalization is accelerating, necessary market stabilization measures should be implemented promptly."

The Bank of Korea's Monetary Policy Committee will hold seven policy decision meetings in February, April, May, July, August, October, and November. Since the base rate was raised to 1.25% last month, it was widely expected that there would be no rate hike this month. However, with confirmation of a tightening pace acceleration from the FOMC, the possibility of additional hikes between February and May is increasing.

Market consensus favors the base rate rising to 1.75% this year, but some forecasts suggest it could increase to 2% depending on the pace of U.S. rate hikes. Professor Kim So-young of Seoul National University's Department of Economics said, "If the U.S. accelerates its rate hikes, three to four hikes could be possible this year," adding, "They are expected to respond considering inflation, the economy, and the impact of Omicron."

Professor Ha Jun-kyung of Hanyang University's Department of Economics commented, "The base rate was raised in August and November last year, and again in January this year, reaching 1.25%. Given that monthly hikes are unusual, the possibility of a rate hike in February is low," and added, "Rate hikes will be made reflecting inflation, exchange rates, and economic conditions."