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Fed signals prolonged high interest rates through next year

Fed signals prolonged high interest rates through next year

Posted September. 23, 2023 08:04,   

Updated September. 23, 2023 08:04


On Wednesday, the US Federal Reserve (Fed) maintained its benchmark interest rate at an annual range of 5.25 to 5.5%. Although there's still potential for a rate hike within the year, projections indicate that these high-interest rates will persist until the end of next year, causing global economic tremors. Consequently, the majority of major countries' stock markets, including South Korea, have turned bearish.

The ripple effects intensified primarily because the Fed revised its end-of-year forecast for interest rates from 4.6% in June to 5.1%. Federal Reserve Chairman Jerome Powell commented, "We need policy to be restrictive so that we can get inflation down to target. Okay. And we're going to need that to remain to be the case for some time. " With predictions of international oil prices surging up to $120 due to production cuts in oil-producing nations like Saudi Arabia and the US showcasing high growth and employment indicators, more time is required to curb inflation.

For South Korea, ranked fourth globally with a household debt to GDP ratio of 101.7% in the second quarter, the impact of the high-interest rates might be particularly severe. As US Treasury rates rise, funding rates for Korean banks are skyrocketing. Local banks' home mortgage floating rates also climbed to the 6% range in just six months. Despite this, house prices continue to rise, and an increasing number of people are taking on debt to purchase homes, leading to a rapid surge in household debt. Nevertheless, the Bank of Korea is hesitant to raise interest rates, fearing further economic downturn.