US Powell: "Significant Increase Possible at Next Meeting... US Economy Not in Recession" (Update)

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), stated on the 27th (local time) that "interest rates will reach 3.00~3.5% by the end of this year," and added, "an unusually large rate hike could occur at the next meeting." Regarding the debate over a U.S. recession, he drew a line by emphasizing the strong labor market, saying, "It is not a recession."

At a press conference held immediately after the Federal Open Market Committee (FOMC) regular meeting that afternoon, Chairman Powell said, "We want to see evidence that inflation will ease over the next few months." On that day, the Fed raised the federal funds rate by 0.75 percentage points from the previous 1.50~1.75% to 2.25~2.50%. This marks two consecutive months of a 'giant step' (0.75 percentage point increase) following June.

Chairman Powell said, "Current inflation is too high, so a 0.75 percentage point increase is appropriate," and evaluated, "Although recent rate hikes have been rapid and large, I think we have not yet felt the effects of the increases." He emphasized that at the next FOMC meeting in September, "another unusually large increase could be appropriate," adding, "This will be decided based on the data."

During the press conference, when Chairman Powell mentioned that "the pace of rate hikes could slow," the market immediately welcomed the so-called 'pace adjustment theory.' However, his subsequent remarks focused on being 'data-driven.' When asked about the possibility of raising rates by 1.0 percentage point at once in the future, Powell replied that he would review the data before the next meeting. He said, "We will make rate decisions at each ongoing meeting," and "It depends on the data." He also mentioned that the timing to slow the pace of hikes has not been decided.

Regarding the U.S. economy, he diagnosed that it is currently "not experiencing a recession." Chairman Powell acknowledged that "growth is slowing," but emphasized the strong labor market and drew a line by saying, "It is not a recession." He repeated his previous remarks, stating, "Whether inflation is falling is the most important," and "The economy cannot function without price stability. You cannot have a strong labor market without price stability."

Additionally, Chairman Powell still emphasized the possibility of a soft landing but assessed that "the path to a soft landing has become narrower." Regarding the second-quarter U.S. economic growth rate (GDP) data to be released on the morning of the 28th, he said, "If it turns negative, we will look at it carefully," but also noted, "(The strong) labor market calls the GDP data into question."

Meanwhile, with the rate hike on that day, the U.S. benchmark interest rate surpassed the Korean benchmark rate (2.25%). This is the first time in about two and a half years since February 2020 that the Korea-U.S. interest rates have been inverted.

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