Despite 4 Consecutive Giant Steps by the US, "Policy Adjustment Ready"... New York Stock Market Rises

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] As the U.S. central bank, the Federal Reserve (Fed), implemented a so-called 'Giant Step' by raising the benchmark interest rate by 0.75 percentage points for the fourth consecutive time, while expressing the possibility of policy changes if necessary in the future, the New York stock market rallied across the board on the 2nd (local time).

As of 2:23 p.m. Eastern Time, the Dow Jones Industrial Average was trading 0.84% higher than the previous close. The S&P 500, which focuses on large-cap stocks, rose 0.51%, and the Nasdaq, which is tech-heavy, increased by 0.34%.

Waiting for the results of the Federal Open Market Committee (FOMC) regular meeting, the New York stock market, which started lower, showed an upward trend after the monetary policy statement was released at 2 p.m. The S&P 500 and Nasdaq, which had remained in a downtrend, both turned positive, and the Dow also slightly expanded its gains.

The Fed announced that it would raise the federal funds rate by 0.75 percentage points from the previous 3.0?3.25% to 3.75?4.0%. This unprecedented fourth consecutive Giant Step was decided as inflation showed little sign of easing despite the high-intensity tightening. However, the monetary policy statement included the stance that "it will consider the cumulative effects of the tightening monetary policy, the lag with which monetary policy affects economic activity and inflation, and economic and financial developments," and "it is prepared to adjust monetary policy appropriately if risks arise," indicating the possibility of future policy adjustments. The stock market rally is interpreted as a result of increased expectations for policy adjustments due to this new wording.

After the release of the monetary policy statement, the 10-year Treasury yield in the New York bond market fell below 4%. The 2-year yield, which is sensitive to monetary policy, also dropped to around 4.45%.

The market is currently cautious, awaiting the press conference of Fed Chair Jerome Powell, scheduled to begin at 2:30 p.m. local time. Attention is focused on whether he will hint at a so-called slowdown in the pace of rate hikes.

This 0.75 percentage point increase was originally anticipated by the market. The September Consumer Price Index (CPI) released last month showed an 8.2% increase year-over-year, raising concerns about entrenched inflation, and recent employment data supported a strong labor market.

Accordingly, the interest rate differential between South Korea (3.0%) and the U.S. widened to a maximum of 1.0 percentage point. This is the same level as from March 2018 to February 2020, raising concerns about future foreign capital outflows and depreciation of the Korean won.

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