[Click eStock] "FOMC Growth Rate Over Inflation"

The U.S. Federal Reserve (Fed) held the benchmark interest rate steady at the March Federal Open Market Committee (FOMC) meeting as expected by the market and maintained its forecast for three rate cuts within the year.

On the 21st, Ki-tae An, an economist at NH Investment & Securities, released a report stating, "There is an inclination to cut rates, but the final level will not be low."

He analyzed, "Growth rate is the main factor," adding, "The growth rate forecasts for 2025 and 2026 have been raised to 2%, which is higher than the potential growth rate (1.8%)."

The Long-Run Rate, which refers to the benchmark interest rate outlook for 3 to 5 years ahead, was slightly raised to 2.6%. This suggests the possibility of rate cuts within the year under the current inflation trajectory. The forecast for next year's rate cut magnitude was lowered from the previous 100 basis points to 75 basis points.

It was interpreted that FOMC members believe that supply expansion, rather than demand overheating, can boost the U.S. growth rate. If a 2% growth rate continues, the need for steep rate cuts after next year will decrease, and the final terminal rate of the benchmark interest rate could also be higher.

This press conference was interpreted as leaving various possibilities open. During the press conference, there were many questions reminiscent of the arguments recently highlighted in the U.S. by former Fed economist Sahm. Sahm projected that since the FOMC can sufficiently verify PCE inflation data only by July 31, rate cuts in the first half of the year seem unlikely, and that the first cut would require unanimous agreement among all members.

Questions arose during the press conference about the timing of having sufficient data and whether unanimous consent is necessary. Chairman Powell said it is difficult to specify the exact timing to confirm inflation stabilization and mentioned that while FOMC decisions aim for unanimity, this may not always be the case. This was interpreted as Chairman Powell leaving the door open for rate cuts within the year from the perspective of the FOMC decision-making structure.

Strategist Young-hwan Kim explained that from the stock market reaction perspective, the key point in watching this FOMC was whether the market would positively accept the maintenance of three rate cuts within the year or negatively view the reduction in the number of rate cuts in 2025.

The rise in the U.S. stock market and the decline in 10-year Treasury yields were interpreted as the financial market focusing more on the maintenance of three rate cuts within the year. The financial market also appeared largely unaffected by the timing of the initial rate cut.

Chairman Powell stated regarding future inflation outlook that the downward trend in inflation has not changed and that he did not read too much into the signals from the January and February inflation indicators. Investors in stocks were thus judged to be relieved by the reduced likelihood of Treasury yields rising again and constraining the stock market.

With concerns about valuation contraction in the stock market weakened, investor attention is expected to shift to the first-quarter earnings season. Over the past month, sectors in the KOSPI with upward revisions in first-quarter net profit forecasts include semiconductors, consumer staples, energy, trading companies, IT home appliances, and healthcare.

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