Financial authorities say Fed's rate hike to have limited market impact
Summary
Financial authorities said Thursday that the U.S. Federal Reserve’s rate hike is expected to have a limited impact on financial markets because it had already been priced in. The assessment came at a meeting chaired by Finance Minister Koo Yun-cheol and attended by Bank of Korea Gov. Shin Hyun-song, Financial Services Commission Chairman Lee Eog-weon and Financial Supervisory Service Gov. Lee Chan-jin. The Fed raised its benchmark rate by a quarter point to 3.75-4.00 percent overnight, its first hike since July 2023, and signaled the possibility of another increase later this year. Korea said it will closely monitor domestic financial and foreign exchange markets and may take stabilization measures if needed.
Key Facts
- The Federal Reserve lifted its benchmark interest rate by 0.25 percentage point to a target range of 3.75 percent to 4.00 percent.
- It was the Fed’s first rate hike since July 2023.
- The finance ministry said the adjustment had already been reflected in market prices.
- Officials said volatility in the government bond market has been increasing because of external conditions, including the U.S. rate hike.
From left, Financial Supervisory Service Gov. Lee Chan-jin, Finance Minister Koo Yun-cheol, Bank of Korea (BOK) Gov. Shin Hyun-song and Financial Services Commission Chairman Lee Eog-weon pose ahead of their meeting in Seoul, Thursday. Courtesy of Ministry of Finance and Economy.
The U.S. Federal Reserve's decision to raise its key rate for the first time in more than three years to combat inflation is expected to have a limited impact on financial markets as expectations of the move had already been priced in, financial authorities said Thursday.
The assessment was made during a meeting chaired by Finance Minister Koo Yun-cheol and attended by Bank of Korea (BOK) Gov. Shin Hyun-song, Financial Services Commission Chairman Lee Eog-weon and Financial Supervisory Service Gov. Lee Chan-jin to review the impact of the rate hike.
Overnight, the Fed raised its benchmark interest rate by a quarter percentage point in its first hike since July 2023, bringing the target range to 3.75-4.00 percent while signaling the possibility of another increase later this year amid persistent inflation and high oil prices.
"The participants assessed that the Federal Reserve decided to raise the rate after considering the robustness of the U.S. economy, employment conditions, persistent inflation, the recent rise in oil prices and geopolitical uncertainties," the finance ministry said.
"The participants also assessed that the rate hike will have a limited impact on financial markets as the adjustment has already been reflected in market prices," it added.
The finance ministry said Korea will work closely with relevant agencies to monitor the domestic financial and foreign exchange markets.
"The participants also assessed that volatility in the government bond market has been increasing due to changes in external conditions, including the U.S. rate hike," the ministry said, adding that they agreed to take market stabilization measures if necessary.
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