[Big Step Preview] US Powell "Discussing 0.5%P Increase in May"... Tightening Clock Accelerates

[Image source=EPA Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), who has transformed into an 'inflation fighter,' has made the so-called 'big step' of raising the benchmark interest rate by 0.5 percentage points in May a foregone conclusion. The last time the Fed took a big step was in May 2000 during the dot-com bubble.

On the 21st (local time), Powell attended a panel discussion hosted by the International Monetary Fund (IMF) in Washington D.C. and stated, "I think it is appropriate to raise the benchmark interest rate a little more quickly," adding, "A 0.5 percentage point increase will be discussed at the May meeting." This officially confirmed the possibility of a big step at the Federal Open Market Committee (FOMC) regular meeting held on May 3-4. He made it clear that he intends to curb the U.S. inflation, which is at its highest level in over 40 years, saying, "The economy does not function properly without price stability."

Regarding the market's emphasis on consecutive big steps, Powell also left room for interpretation, saying, "The market is approaching it as we see it. It is generally responding appropriately." The market viewed Powell's hawkish tone as becoming more pronounced, and there were assessments that the Fed's tightening pace could be steeper than initially expected. It is anticipated that at least three of the remaining six FOMC meetings this year will see big steps, with the policy rate exceeding the neutral rate by the end of the year.

According to the Chicago Mercantile Exchange (CME) FedWatch, immediately after Powell's remarks, the federal funds (FF) rate futures market reflected a 99.8% chance of a big step next month. The possibility of an additional 0.75 percentage point increase at the June meeting rose to 74.2%, more than 45 percentage points higher than a week ago. BMO Capital Markets said, "Consecutive 0.5 percentage point increases in May and June are reasonable," adding, "Whether there will be a 0.5 percentage point increase in July depends on upcoming economic indicators."

The Fed's rapid tightening, which leads global monetary policy, inevitably affects the global economy as a whole. Powell indicated on the day that "we will use the tools we have," suggesting plans to begin quantitative tightening, including balance sheet reduction, following interest rate hikes.

Due to tightening concerns, the U.S. 10-year Treasury yield rose to 2.94%, approaching 3%. The Nasdaq index, which is sensitive to interest rates and centered on tech stocks, fell 2.07% compared to the previous session. On the morning of the 22nd, both the KOSPI and KOSDAQ in the Korean stock market recorded declines of over 1%. In the Seoul foreign exchange market that day, the won-dollar exchange rate opened at 1242.2 won, up 3.2 won, maintaining the early 1240 won range.

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