The U.S. Federal Reserve has raised its benchmark interest rate by 0.25 percentage points. The dot plot, which reflects the rate outlook of Fed officials, also indicated the possibility of another increase later this year. As a result of the stronger-than-expected tightening stance, U.S. Treasury yields and the dollar rose, while the New York stock market declined, reflecting a hawkish outcome in the financial markets.
According to the International Financial Center on September 17, the Fed decided at its September Federal Open Market Committee (FOMC) meeting to raise the target range for the federal funds rate to 3.75-4.00%, an increase of 0.25 percentage points from the previous level. The Fed explained that while there are some uncertainties due to geopolitical factors, the U.S. economy is expanding at a solid pace, and inflation remains high, which justified the rate hike.
The outlook for future rate increases has also risen. The dot plot showed that the median forecast for the federal funds rate at the end of the year was raised from 3.8% to 4.1%, an increase of 0.3 percentage points. Among the 18 committee members, 12 expect the year-end rate to be between 4.00% and 4.25%. Considering that the current upper limit of the federal funds rate is 4.00%, this suggests the possibility of another increase this year.
As the potential for prolonged tightening became apparent, the U.S. financial markets reacted immediately. On September 16, the yield on the U.S. 10-year Treasury note rose by 2 basis points to 5.02%. The dollar index also climbed 0.70% to 100.31. In contrast, the euro and yen fell by 0.68% and 0.74%, respectively.
Stock markets showed mixed results. The S&P 500 index fell 0.45% amid assessments that the FOMC outcome was more hawkish than expected. The volatility index (VIX), which reflects market anxiety, rose 14.17% to 17.16.
Conversely, the European Stoxx 600 index increased by 0.46%, benefiting from easing inflation concerns due to falling oil prices. Japan's Nikkei 225 index rose 0.69%, and South Korea's KOSPI gained 1.37%. This indicates that the impact of the U.S. rate hike did not lead to a simultaneous decline across global stock markets.
In the commodities market, both international oil and gold prices fell. Brent crude oil dropped 2.69% to $105.83 per barrel. Although prices remain above $100 per barrel, expectations for the normalization of oil transport in Saudi Arabia were reflected in the decline. Gold prices fell by 2.85% to $4002.4 per ounce.
However, there are forecasts that the rise in interest rates may not lead to a long-term decline in U.S. stocks. Bloomberg noted that strong corporate earnings forecasts, particularly in the tech sector, are supporting the market, and liquidity indicators suggest that the stock market can withstand a certain level of rate increases.
The future direction of global financial markets is expected to depend on the number of additional rate hikes by the Fed, the degree of inflation moderation, and the persistence of high oil prices. Analysts suggest that if the Fed continues tightening to control inflation, upward pressure on U.S. Treasury yields and the dollar may persist.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.