[Click eStock] "Uncertainty Surrounding US Fed Monetary Policy Continues"

Kiwoom Securities analyzed on the 15th that "uncertainty surrounding the US Federal Reserve's monetary policy may continue next week."

Kim Yumi, an economist at Kiwoom Securities, said, "Except for US housing indicators, there are no economic indicators that could significantly impact the market," adding, "Key price variables may move sensitively in response to statements from Fed officials and news flow regarding appointments in the Trump administration's second term."

Following Fed Chair Powell's cautious stance on the pace of interest rate cuts, it is necessary to pay closer attention to upcoming labor market indicators. This is because a slowdown in the labor market could serve as an important justification in the normalization process addressing the Fed's excessive tightening.

Although inflation concerns are rising again, if the labor market slowdown continues, the Fed's interest rate cuts next year remain valid. This week, concerns that the Fed's rate cut pace might slow down increased, leading to a wider rise in the US dollar and Treasury yields.

The US consumer price index (CPI) for October rose slightly compared to the same month last year, but the core CPI remained steady at 3.3% year-over-year, meeting market expectations. However, the US producer price index (PPI) exceeded market forecasts, fueling inflation worries.

Additionally, inflation concerns expressed by Fed officials and remarks by Chair Powell suggesting a delay in the pace of rate cuts further intensified upward pressure on the US dollar and Treasury yields.

At an event in Dallas, Fed Chair Powell stated that the US economy is the strongest in the world and that economic conditions are not signaling a need to hasten rate cuts. This reinforces market expectations that the pace of Fed rate cuts will be slower than anticipated due to inflation concerns stemming from the Trump administration's second-term policies.

Next week, aside from US housing indicators, there are no significant economic data releases expected to impact the market. Economist Kim said, "Key price variables are expected to move sensitively to news flow," adding, "Statements from Fed officials and uncertainties related to appointments and policies in the Trump administration's second term could increase volatility in price variables."

In Fed monetary policy, the focus, which was mainly on growth and especially the labor market, is gradually shifting toward also considering inflation. Concerns about the ripple effects of the Trump administration's second-term policies, combined with a favorable economic trend, are again expanding uncertainty around the Fed's monetary policy.

However, if the inflation slowdown trend remains valid and the Trump administration's second-term policies are not expected to immediately stimulate inflation, the Fed's monetary policy normalization process should still remain open. In this regard, upcoming US labor market indicators are important. The decline in the US job openings rate and the slowdown in leading indicators such as voluntary quit rates and hiring rates continue, with employment mainly coming from sectors less sensitive to the economic cycle.

Considering uncertainties related to the Trump administration's second-term policies, companies are likely to remain cautious about hiring for the time being. The financial market is pricing in about one to two US interest rate cuts next year. However, if the Fed's excessive tightening normalization remains valid, there is room for a larger scale of rate cuts. Considering this, the recent rise in the US dollar and Treasury yields appears excessive in the short term.