[Click eStock] "Market Anxiety ↓ After May FOMC, No Stagflation or Stagnation"

Denies 'Interest Rate Hike Rumors' Raised by Some
Alleviates Stagflation Concerns
Anxiety Eased → Government Bond Yields, Dollar, and Oil Prices Fall Together

Hi Investment & Securities analyzed the results of the 'May Federal Open Market Committee (FOMC)' meeting on the 2nd as "a meeting that significantly alleviated market concerns," stating that "there is neither stagflation nor inflation."

[Image source=EPA Yonhap News]

The FOMC statement released on the 1st (local time) newly included language mentioning inflation risks: "The inflation rate has eased over the past year but remains elevated. Recent months have shown insufficient further progress toward the Committee's 2% inflation target." However, subsequent press conference remarks by Jerome Powell, Chair of the Federal Reserve (Fed), helped dispel various concerns regarding inflation and interest rates.

Chair Powell said, "It does not seem likely that the next policy rate change will be an increase," adding, "Our focus is on how long to maintain the tightening policy." This drew a clear line against the 'rate hike speculation' raised by some. He also mentioned that inflation risks, mainly the rise in housing prices and rents, would ease with a time lag. Regarding concerns about stagflation (the simultaneous occurrence of economic recession and inflation), he stated that "there is neither stag nor inflation risk."

Park Sang-hyun, a researcher at Hi Investment & Securities, said, "In a way, the May FOMC meeting, which had raised significant concerns, ended smoothly," adding, "Uncertainty related to the Fed's rate cuts will continue, but the risk of further increases in Treasury yields due to rate cut uncertainty is likely to be somewhat limited through this meeting."

Meanwhile, reflecting the FOMC meeting results, a simultaneous decline in Treasury yields, the dollar, and crude oil was observed. While Treasury yields and the dollar weakened, crude oil prices fell below $80 per barrel, supported by expectations of a ceasefire negotiation between Israel and Hamas. Researcher Park said, "However, until the Fed’s emphasized path toward 2% inflation is sufficiently confirmed, it is expected that the financial market will continue to experience volatility riding the tightrope between inflation and economic growth."