As Powell Hints at Accelerated Tapering, US Interest Rate Hike Expectations Increase

▲Jerome Powell, Chair of the U.S. Federal Reserve (Fed) [Image source=Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Following Federal Reserve (Fed) Chair Jerome Powell's indication of an accelerated tapering of asset purchases, market expectations for a base interest rate hike next year have increased, MarketWatch and others reported on the 30th (local time).

According to the FedWatch of the Chicago Mercantile Exchange (CME), the probability of a 25 basis point rate hike by the Fed in March next year, as anticipated by the financial market, rose from 18% the previous day to 26%.

Additionally, the possibility of a rate hike in May increased by 8 percentage points to 38% in just one day, and the likelihood of two rate hikes by June next year also rose from 14% to 21%.

The yield spread between the 2-year and 10-year U.S. Treasury bonds has narrowed to its smallest level since January.

Earlier, Chair Powell mentioned at the Senate Banking Committee hearing the possibility of accelerating the Fed's tapering pace to address growing inflation concerns.

Powell said, "At the next meeting in a few weeks, we will need to discuss whether it is appropriate to end asset purchases several months earlier," adding, "We will have more information about the new variant over the next two weeks."

However, he assessed that "the emergence of the COVID-19 variant Omicron has caused downside effects on employment and the economy, and increased uncertainty about inflation."

The Fed announced the start of tapering targeting mid-next year immediately after the Federal Open Market Committee (FOMC) regular meeting on the 4th, stating that it would initially reduce asset purchases by $15 billion per month (approximately 17.7 trillion KRW) in November and December.

This content was produced with the assistance of AI translation services.