[FOMC] US Fed Raises Interest Rate by 0.75%P for Two Consecutive Months... Korea-US Interest Rate Inversion

[Image source=AP Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina, Reporter Mun Jewon] The U.S. central bank, the Federal Reserve (Fed), has consecutively implemented two 'giant steps' by raising the benchmark interest rate by 0.75 percentage points to curb soaring inflation. With the benchmark interest rates of the U.S. and South Korea reversing for the first time in about two years and six months, repercussions on our economy are inevitable.

On the 27th (local time), the Fed announced in a statement following the regular meeting of the Federal Open Market Committee (FOMC) that it would raise the federal funds rate by 0.75 percentage points from the existing 1.50?1.75% to 2.25?2.50%. This marks a consecutive giant step following last month.

This decision was made unanimously amid concerns that inflation is not easing. The FOMC stated, "Although consumption and production indicators have slowed, job growth remains strong and unemployment is low," and added, "We are strongly committed to returning inflation to the 2% target."

In particular, the Fed has left open the possibility of taking another giant step at the September meeting. Fed Chair Jerome Powell said at a press conference held immediately afterward, "An unusually large increase may be appropriate at the next meeting as well," and "It will be decided based on data." The Fed's projected year-end interest rate level is 3.0?3.5%. However, Chair Powell also hinted at a pace adjustment, saying, "As monetary policy tightens further, it will be appropriate at some point to slow the pace of rate hikes." Regarding the recent U.S. economy, he assessed, "Growth is slowing but the economy is not in a recession."

With this decision, the U.S. benchmark interest rate has risen above South Korea's (2.25%), raising concerns such as the potential outflow of foreign capital. This is the first time since February 2020 that the Korea-U.S. interest rates have reversed. On the morning of the 28th, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho held an emergency macroeconomic and financial meeting at the Bankers Hall in Jung-gu, Seoul, together with Bank of Korea Governor Lee Chang-yong and others to discuss response measures. Deputy Prime Minister Choo stated, "The Fed's decision is in line with market expectations," and added, "The impact on the domestic financial market will also be limited."