[Weekly Outlook] US Likely to Take 'Big Step' This Time... Focus on Chairman Powell's Remarks

Fed to Hold FOMC Next Week to Decide Rate Hike Size
Focus on Impact on Domestic Financial Market and Exchange Rate

The U.S. Federal Reserve (Fed) will hold its regular Federal Open Market Committee (FOMC) meeting next week to decide the size of the interest rate hike. This time, it is expected to slow down the pace of hikes somewhat with a 'big step' (a 0.50 percentage point increase in the benchmark interest rate), drawing attention to the tone of Fed Chair Jerome Powell's remarks and the impact on the domestic financial market.

Jerome Powell Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), is holding a press conference at the headquarters in Washington DC on May 4th (local time). [Image source=Yonhap News]

According to related departments on the 11th, the Fed is expected to implement a big step at the FOMC meeting held on the 13th-14th (local time). The U.S. has conducted four consecutive 'giant steps' (a 0.75 percentage point increase in the benchmark interest rate) to curb the steep inflation trend, but with growing concerns about an economic recession recently, many expect that a fifth consecutive giant step will not be taken.

The market is focusing not only on the size of the Fed's rate hike but also on Chair Powell's remarks. Even if the Fed slows the pace of rate hikes for now, if Chair Powell mentions raising the terminal rate level or maintaining high rates for an extended period, the market shock could be significant.

On the 13th (local time), the U.S. November Consumer Price Index (CPI) will also be released. In October, the year-on-year increase was 7.7%. If the upcoming figure falls below market expectations, concerns about U.S. inflation could significantly ease. Conversely, if inflation does not slow down faster than expected, uncertainty about the timing of a U.S. rate freeze will increase.

Domestically, Statistics Korea will announce the November employment trends on the 14th. In October, the number of employed persons was 28,418,000, an increase of 677,000 compared to the same month last year. This employment growth trend has continued for 20 consecutive months since March last year.

However, the increase has declined for five consecutive months since May (935,000), with 841,000 in June, 826,000 in July, 807,000 in August, 707,000 in September, and continuing through October. Depending on the November figures, it will be possible to gauge how sharply the domestic employment market is slowing down. The government and the Bank of Korea expect the employment slowdown to deepen further due to base effects, high inflation, interest rate hikes, and export contraction.

Additionally, the Ministry of Economy and Finance will release the monthly fiscal trends on the 15th. The fiscal trends will include indicators such as national tax revenue, expenditures, and fiscal balance as of October. Previously, in September, the managed fiscal balance deficit was 91.8 trillion won, and the national debt was 1,029.1 trillion won.

The Bank of Korea will disclose the November import and export price indices on the 15th. The October import price index (provisional figure based on the Korean won, 2015 level 100) was 156.89, up 1.5% from the previous month (154.51), marking a rise for two consecutive months. Since then, the won-dollar exchange rate and international oil prices have stabilized, leading to analyses that the upward trend in the import price index may have slowed.

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