Fed signals 3 rate hikes next year

The U.S. Federal Reserve (Fed) has decided to get out of the easing monetary policy of the last two years and accelerate austerity measures as it seems more urgent to address the worst inflation in 40 years, rather than releasing money into the market to boost the economy. As the Fed’s austerity stance will come sooner, it is expected to affect the monetary policies of other countries, including South Korea, and the global asset market.

Following a regular meeting of the Federal Open Market Committee (FOMC) over two days, the Fed made a statement on Wednesday that it would double tapering. The Fed had announced last month that it would taper by 15 billion dollars on a monthly basis, but the new announcement says it will taper by 30 billion dollars before completing it in March next year. In March last year when COVID-19 broke out, the Fed lowered the interest rate close to zero and purchased 120 billion dollars of bonds every month to release money into the market.

The Fed signaled that there could be three interest rate hikes next year. According to a point chart released by the Fed, 12 out of 18 FOMC members predicted three or more rate hikes next year. A point chart shows interest rate predictions by FOMC members.

“The Fed’s normalization of its monetary policy will have effects, however, there would be no change to the existing stance of South Korea to continue to normalize the interest rate given the country’s economy and inflation,” said Governor of the Bank of Korea Lee Ju-yeol during a press conference on Thursday. It is interpreted as South Korea will have additional rate hikes in January and February next year following two rounds of interest rate hikes this year.


Hee-Chang Park ramblas@donga.com