Final Interest Rate Expected to Rise to 5%
Additional Increases Possible Until Q1 2023
[Asia Economy Reporter Hwang Yoon-joo] There is an analysis that the December Federal Open Market Committee (FOMC) will implement a 'big step.' However, it is expected to be hawkish, including an upward revision of the dot plot.
The Investment Strategy Team at Kiwoom Securities Research Center stated on the 10th, "The Federal Reserve is expected to raise the policy rate by 50 basis points (1bp=0.01%p) to 4.25~4.50%, in line with recent market expectations." This is explained as a move to slow down in order to confirm the cumulative tightening effect after the last four giant step hikes.
Researcher Ahn Ye-ha of Kiwoom Securities said, "At the September FOMC, the Fed presented the final rate level for 2023 as 4.6%, but it is expected to be revised upward to around 5%," adding, "What will be important going forward is not the pace of rate hikes but how much more the rates will be raised."
Researcher Ahn predicted, "If the final rate level is revised upward to the 5% range, additional hikes will continue until the first quarter of 2023." He anticipated that if the gradual hike trend continues into next year, uncertainty about monetary policy will be maintained. This means the Fed intends to control expected inflation through this.
Fed Chair Powell is also expected to make hawkish remarks. At the November FOMC, Chair Powell strengthened expectations for slowing the pace but emphasized that what matters more going forward is how much more rates will be raised and the duration, revealing a hawkish stance. If inflation does not slow down faster than expected, uncertainty about the timing of rate freezes will still remain.
Researcher Ahn analyzed, "Recently, the 2-year U.S. Treasury yield has fallen below 4.3%, and the 10-year U.S. Treasury yield has fallen below 3.5%, indicating that the Fed's 5% rate level has not yet been reflected," adding, "This suggests that rate hikes have stopped and risks of economic downturn are being priced in advance."
He further forecasted, "If the market's expectations for the final rate level change, there is still a high risk that market interest rate upward pressure will increase as this is reflected again."
Researcher Ahn stated, "The expectation that inflation will slow down along with the gradual economic downturn is ultimately a factor that increases demand for long-term bonds," and added, "Considering this, it is appropriate to use the period of increased volatility after the December FOMC as an opportunity for phased buying."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
