July FOMC, Giant > Ultra?

75bp Rate Hike Likely
US Labor Shortage Persists
Inflationary Pressures Remain High
100bp Hike Too Much...Recession Concerns Rise
Long-term Inflation Expectations Also Trending Downward

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] Analysis suggests that a 75bp (1bp=0.01 percentage point) increase is likely at the upcoming U.S. Federal Reserve's Federal Open Market Committee (FOMC) meeting scheduled for the 28th (local time). Due to persistent labor shortages in the employment market and high inflationary pressures, coupled with growing recession risks, a 100bp hike is considered unlikely.

Jeon Gyu-yeon, a researcher at Hana Securities, stated on the 22nd, "U.S. employment indicators remain tight, and inflationary pressures are still skewed upward." He explained that Fed officials have no choice but to maintain a strong tightening stance due to concerns over entrenched high inflation. Jeon cited U.S. employment data as the primary basis for the 75bp increase.

The U.S. Department of Labor reported on the 9th that nonfarm payroll employment increased by 372,000 in June, significantly exceeding market expectations (+250,000). The June unemployment rate was 3.6%, approaching the lowest level in nearly 50 years. Despite growing recession concerns, U.S. employment indicators remain robust.

[Image source=Yonhap News]

Inflationary pressures also remain high. The U.S. Consumer Price Index (CPI) for June rose 9.1% year-over-year, marking the highest level in 40 years and 6 months since December 1981 (8.9%). The core CPI, which excludes volatile energy and food prices and was expected to show a slowdown, also increased by 5.9%.

However, long-term expected inflation, which was the fundamental reason for the 75bp hike in June, is on a downward stabilization trend. The University of Michigan Consumer Sentiment Index's 5-year expected inflation rate fell by 0.3 percentage points to 2.8% in July compared to the previous month.

Still, with growing recession concerns, a 100bp hike is expected to be difficult. Jeon pointed out, "Since U.S. consumer prices entered the 9% range in June, the probability of a 100bp hike in July has increased, but the larger the rate hike, the greater the risk of recession."

He added, "It is also important to consider that at the June FOMC, Esther George, previously classified as a hawk, opposed the 75bp hike due to concerns over increased economic uncertainty from abrupt monetary policy changes and expressed a minority opinion favoring a 50bp increase."

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