U.S. interest rate remained unchanged with additional rate hikes signaled later this year

The Federal Reserve (Fed) opted to keep the base interest rate unchanged on Tuesday, but it left room for potential interest rate hikes later in the year. Following the two-day Federal Open Market Committee (FOMC) meeting held on Tuesday and Wednesday, Federal Reserve Chairman Jerome Powell stated during a press conference, "To assess the effectiveness of our tightening policy, the Federal Reserve will maintain the current base interest rate this month and proceed with quantitative tightening." Consequently, the U.S. base interest rate remains at 5.25-5.50%, maintaining a 2.0 percentage point gap compared to Korea, which is the same as the previous month.

The median interest rate forecast by FOMC members for the end of the year stands at 5.6% (ranging from 5.50% to 5.75%), which is consistent with the forecast made in June. This implies that there is a possibility of at least one additional rate hike among the two remaining FOMC meetings in November and December. Furthermore, the U.S. Federal Reserve has set its final interest rate projection for the next year at 5.1% (ranging from 5.0% to 5.25%), marking a 0.5 percentage point increase from the June forecast of 4.6%. This suggests that the Fed intends to maintain interest rates in the 5% range for an extended period.

With the increasing likelihood of an extended austerity policy in the United States, the domestic financial market experienced a downturn. On Thursday, KOSPI concluded trading at 2,514.97, marking a decrease of 44.77 points (1.75%) compared to the previous day. KOSDAQ also closed at 860.68, down by 22.04 points (2.50%). Anticipating a strengthening of the dollar, the foreign exchange market witnessed fluctuations as well. On this particular day, the won-dollar exchange rate ended at 1339.7 won, reflecting an increase of 9.6 won from the previous day.


Hyoun-Soo Kim kimhs@donga.com