"Central Bank Has a Long Way to Go," Powell's Remarks Lead to US Stock Market Decline

[Image source=EPA Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] "I believe the central bank still has a way to go."

After the U.S. Federal Reserve (Fed) decided on a fourth consecutive giant step (a 0.75 percentage point increase in the benchmark interest rate) and expressed that policy changes are possible if necessary, the New York stock market, which had been rallying in unison, turned downward again on the 2nd (local time) following remarks by Fed Chair Jerome Powell.

As of 2:50 p.m. Eastern Time, the Dow Jones Industrial Average in the New York stock market was moving at a level 0.14% lower than the previous close. The large-cap focused S&P 500 index was down 0.64%, and the tech-heavy Nasdaq index was down 1.02%.

Waiting for the results of the Federal Open Market Committee (FOMC) regular meeting, the New York stock market, which started off lower, showed an upward trend after the monetary policy statement was released at 2 p.m.

The released statement included the stance that "the cumulative tightening monetary policy, the lag with which monetary policy affects economic activity and inflation, and economic and financial developments will be considered," and "we are prepared to appropriately adjust monetary policy if risks arise," which raised expectations for possible future policy adjustments. The S&P 500 and Nasdaq indices, which had been in a downtrend, turned upward in unison, and the Dow also slightly expanded its gains.

However, the mood shifted again starting at 2:30 p.m. when Chair Powell's press conference began. In the Q&A session, Powell showed a hawkish tone, saying, "Looking at various data including inflation indicators, overall, I cautiously expect that we may need to raise rates more than initially thought."

He said, "At some point, we can stop raising rates and hold them. That could be at the next meeting," but also drew a line by saying, "However, ultimately, nothing has been decided yet." He added, "It is difficult to say that the current financial environment is too tight," emphasizing, "The central bank still has a way to go. Our decisions depend on incoming data and the impact on economic activity forecasts."

Following the regular meeting, the Fed announced in a statement 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 proved difficult to curb despite high-intensity tightening.

This 0.75 percentage point increase was a step initially expected by the market. The September Consumer Price Index (CPI) released last month rose 8.2% year-on-year, raising concerns about inflation entrenchment, and recently released employment data also supported a strong labor market.

With this decision, the interest rate inversion gap 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.