US Inflation Expected to Rise 7% for the First Time in 40 Years... Financial Markets Shake Up

Fed, Inflation Response Expected Over Employment
KOSPI and KOSDAQ Decline Widens

[Asia Economy New York=Correspondent Baek Jong-min, Reporter Lee Seon-ae] As the US inflation rate is expected to reach 7%, dark clouds are looming over global financial markets. With the Federal Reserve (Fed) signaling a rate hike and early quantitative tightening in March, significant volatility is anticipated in the financial markets this week depending on the remarks made by Fed Chair Jerome Powell.

[Image source=AP Yonhap News]

According to a Bloomberg survey on the 9th (local time), market experts expect the US Consumer Price Index (CPI) for December last year, to be announced on the 12th, to rise 7% compared to the same period last year. This is a larger increase compared to 6.8% in the previous month. This marks the largest increase since June 1982 (7.1%).

This can be seen as the final signal toward a rate hike. Meanwhile, the December unemployment rate announced on the 7th dropped to 3.9%, providing the Fed with a basis to focus on inflation rather than employment.

On the 11th, Chair Powell will attend a Senate confirmation hearing. The two major events scheduled for this week have enough potential to shake global financial and capital markets. Last week, the US Treasury yield surged to 1.8% intraday, causing the Nasdaq index to fall by 4.53%.

The weakness in the US stock market is also affecting Asian markets including Korea on the 10th. The KOSPI and KOSDAQ, which started with a decline of around 0.2%, widened their losses to the mid-1% range.

Yumi Kim, a researcher at Kiwoom Securities, explained, "Since the release of the December Federal Open Market Committee (FOMC) minutes, the Fed has confirmed its intention to normalize monetary policy more quickly, so the sensitivity of financial markets to inflation indicators and Fed officials' remarks may be heightened."

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