Increase of U.S. Interest Rate at the End of June is Highly Probable

Foreign news reported that it is highly probable for the U.S. interest rate to increase next month in the wake of an indication of inflation.

In particular, the New York Times forecasted on May 17 that the federal funds rate, the standard of the U.S. interest rate, might increase from the current one percent to five percent.

It conveyed that many analysts have no doubt of an increasing interest rate at the end of June as the number of employed has grown through March and April, and consumer price has jumped during the two months.

According to the consumer price index, which was announced on May 14, consumer price recorded a large increase of 4.4 percent during the first four months of 2004 in the wake of a large increase in energy prices, such as gasoline. The increased rate of consumer price last year was only 1.9 percent.

In addition, analysts said that there is clear indication of inflation because of a large increase in the number of employed and the active production in manufacturing industry.

Accordingly, the prediction that the Federal Reserve Board (FRB) will increase the interest rate at the Federal Open Market Committee (FOMC), which is scheduled for June 29 and 30, prevails.

The New York Times analyzed that when considering the inflation rate of this year reaching two percent, there is a possibility for the interest rate to increase from the current one percent to almost five percent, citing Robert T. Parry, president and CEO of the Federal Reserve Bank (FRB) of San Francisco, who has recently said, “The federal funds rate is approximately 2.7 percent higher than inflation rate on average.”

Kwon-Heui Hong Hong konihong@donga.com