US Federal Reserve Expected to Raise Benchmark Interest Rate by 25bp Up to 8 Times Until First Half of Next Year

"Base Rate Hike Cycle Expected to Focus in 2022"
"Inflation Concerns Outweigh Economic Slowdown Worries Due to Rate Hikes"

[Asia Economy Reporter Hwang Yoon-joo] Daishin Securities forecasted on the 27th that the U.S. base interest rate hike cycle will take place up to 8 times from the March Federal Open Market Committee (FOMC) meeting through the first half of next year, assuming a rate adjustment of 25 basis points each time.

Gong Dong-rak, a researcher at Daishin Securities, stated, "The recent inflationary trend has not easily subsided, and after the Federal Reserve retreated from its diagnosis of transitory inflation, the approach has started to change."

He explained, "The logic of 'we should not raise rates significantly because the economy could contract' is shifting toward 'due to high inflation, the economy including consumption could contract, so we must first raise rates to control inflation.'"

Daishin Securities expects the period when the analyzed U.S. rate hike cycle (8 times) will be concentrated to be in 2022.

Researcher Gong advised, "The pace itself may slow down in 2023," adding, "Since there is a significant burden on monetary policy immediately, the bond strategy should be limited to short-term bonds with limited price volatility risk."

Earlier, global central banks including the U.S. Federal Reserve raised their vigilance against inflation starting from the fourth quarter of last year. This marked a shift from the aggressive economic stimulus following COVID-19 to a new policy stance. In the U.S., until the third quarter of last year, the dot plot indicated only one rate hike for 2022. However, at the December FOMC, the number was increased to three, and in January this year, it suggested the start of a rate hike cycle from March and the possibility of more hikes.

Researcher Gong noted, "In past inflationary phases, the bond market tended to downplay the magnitude or intensity of rate hikes, recalling that if monetary authorities responded to inflation, the economy could slow down." The core logic permeating the bond market was "'Even if rates are raised, they cannot be raised much, so how much can they really go up?'"

He emphasized, "We pay attention to the fact that the perception of economic conditions among bond market participants has significantly changed compared to before due to the rapid policy stance shift by monetary authorities," and analyzed, "In Korea, despite the recent supplementary budget (chugyeong) formulation, the burden of government bond issuance still remains."

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