Fed increases rates 25 basis points to 5.5 percent

The U.S. Federal Reserve recently implemented a 25 basis point increase in interest rates, pushing the rate to a 22-year high to a range of 5.25 to 5.50 percent. This move has resulted in the largest gap in history between the U.S. and Korea’s key interest rates, standing at 2.0 percent.

Fed Chairman Jerome Powell stated that although inflation has shown some signs of moderating since the middle of the previous year, achieving the Fed’s target of 22% remains a distant goal. This leaves room for further rate increases, with another potential hike anticipated at the September meeting. So far, the Fed has raised rates 11 times since March, resulting in a total increase of 5.25 percentage points. The rate-hiking campaign was paused in June to assess its impact on the economy, but the Fed’s latest hike reflects its determination to continue with a restrictive monetary policy to rein in inflation.

Market observers are now closely monitoring when the rate hike campaign might come to an end. Chairman Powell hinted at the possibility of another increase in September, but he also suggested that a pause in rate hikes remains on the table as an option. He was clear, however, that there will be no rate decline this year and that inflation is not expected to fall below 2 percent by 2025.


Hyoun-Soo Kim kimhs@donga.com