Will the Bank of Korea Follow 'Less Hawkish' Powell with Rate Freeze?... Concerns Over Additional US Hikes

Powell's Jackson Hole Remarks Rated as 'Expected Level'
Less Global Market Shock Compared to Last Year
However, Possibility of US Rate Hike in November Remains

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed) [Image source=Yonhap News]

Jerome Powell, Chair of the U.S. Federal Reserve (Fed), delivered a 'Jackson Hole speech' that was considered less hawkish (favoring monetary tightening) than expected, which is likely to strengthen the Bank of Korea's stance on keeping the base interest rate unchanged. However, since the Fed may still raise rates further due to high inflation, some analysts caution that it is too early to be complacent about factors such as exchange rate increases.

On the 25th (local time), Powell gave the keynote speech at the annual economic policy symposium held in Jackson Hole, Wyoming, stating, "We will maintain a restrictive monetary policy until we are confident that inflation is consistently moving down to our target level," which was somewhat hawkish, but global financial markets remained relatively stable.

This contrasts with the reaction following Powell's Jackson Hole speech last year, when global financial markets were shaken by the shock. At that time, Powell said, "This is not the time to stop or pause tightening," delivering hawkish remarks that caused the dollar's value to surge and global stock prices to plunge. Subsequently, the Fed aggressively raised the base interest rate, and the won-dollar exchange rate, which had been in the low 1300 won range, soared to the 1400 won range in September after the Jackson Hole speech, showing significant volatility.

Compared to that, Powell's recent speech caused less market shock. The Dow Jones Industrial Average closed up 247.48 points (0.73%) after digesting Powell's remarks, the Standard & Poor's (S&P) 500 index rose 29.40 points (0.67%), and the tech-heavy Nasdaq index gained 126.67 points (0.94%).

Although Powell mentioned the possibility of further tightening, it did not exceed market expectations. Ryan Detrick, Chief Strategist at Carson Group, commented, "Powell's remarks were hawkish, but considering the recent rapid rise in interest rates, they were not as hawkish as feared."

Lee Chang-yong, Governor of the Bank of Korea, is presiding over the Monetary Policy Committee meeting held at the Bank of Korea in Jung-gu, Seoul, on the morning of the 24th, striking the gavel. / Photo by Joint Press Corps

Accordingly, there is growing analysis that the Bank of Korea is also likely to maintain its current base interest rate for the time being. The Bank of Korea is in a difficult position to either raise or lower rates amid the possibility of further rate hikes in the U.S. and concerns about a domestic economic downturn. However, if expectations for the Fed's aggressive tightening weaken, the Bank of Korea's monetary policy will inevitably lean more toward holding steady or cutting rates rather than tightening.

Lee Chang-yong, Governor of the Bank of Korea, said at a press conference following the Monetary Policy Committee meeting on the 24th, "All six monetary policy committee members have expressed the view that the possibility of raising the rate to 3.75% for the time being should be kept open," explaining that "this is because uncertainty about the Fed's monetary policy has increased significantly." This can be interpreted as meaning that if concerns about Fed tightening rise again and the exchange rate surges, the Bank of Korea will respond with a rate hike, but otherwise, it will maintain the current rate for the time being.

However, since the possibility of further Fed rate hikes remains significant, it is too early to be complacent. According to the Chicago Mercantile Exchange (CME) FedWatch, the probability of the Fed raising the base rate at the next Federal Open Market Committee (FOMC) meeting next month is only 19.5%, but the chance of a hike at the November meeting is 46.7%. Powell also stated, "We will look at incoming data and raise rates further if necessary."

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