"January FOMC Holds Base Interest Rate Steady... June Rate Cut Expected"

Strong US GDP... Focus on Achieving Target Inflation
June Interest Rate Cut Expected

[Image source=Yonhap News]

Sangsangin Securities expects the Federal Open Market Committee (FOMC) to keep the benchmark interest rate unchanged (5.25%~5.50%) at its January meeting. Contrary to market expectations, the timing for a rate cut is projected to be possible in June.

On the 31st, Shin Eol, a researcher at Sangsangin Securities, stated, "There is a high possibility of a unanimous decision among Federal Reserve (Fed) members."

Researcher Shin analyzed, "The Fed will confirm the necessity of maintaining high interest rates while keeping the rates steady. The current upper limit of the benchmark rate at 5.50% is expected to be maintained through the second quarter, with rate cuts beginning at the last meeting of the second quarter in June."

The March rate cut is considered premature. Previously, as expectations for a soft landing of the U.S. economy increased, the probability of a March rate cut rose to 50%. This was due to the U.S. fourth-quarter economic growth rate (GDP) recording an annualized 3.3% compared to the previous quarter, significantly exceeding the forecast (2.0%).

Researcher Shin emphasized, "From the Fed's perspective, achieving price stability is the main goal," adding, "This means the U.S. does not need to rush into a rate cut." He further diagnosed, "Ultimately, signals for a rate cut will appear only when evidence shows convergence toward the target inflation rate."

He particularly viewed the sustained decline in core inflation positively. Researcher Shin predicted, "Since a moderate slowdown in employment is expected going forward, there will be no hawkish remarks that could stimulate the market."

However, there are factors that could stimulate supplier-side inflation. Risks of rising oil prices and freight costs due to the expansion of the Middle East conflict in the first half of the year may be reflected.

Researcher Shin forecasted, "Considering this, the market’s expectation of a March rate cut will differ," and "At the same time, a neutral meeting suggesting the possibility of medium-term monetary policy changes is expected."