Facing Uncertainty
The U.S. Federal Reserve has decided not to raise key interest rates on Sept. 17 (local time), citing local inflation remaining below the target and a cooling global economy. In particular, Fed Chair Yellen mentioned worries about the US economy being hit by the Chinese slowdown.
The Fed said that in a two-day Federal Open Market Committee (FOMC) meeting and reaffirmed its view that the current 0 to 0.25 percent target range remains appropriate for continued maximum employment and price stability.
As to the time of a possible hike, the Fed said it will “assess progress -- both realized and expected -- toward its objectives of maximum employment and two percent inflation.”
“The South Korean financial market will continue to face uncertainties in the short term despite the freeze,” Bank of Korea Governor Lee Ju-yeol said in a meeting with local bank heads on Sept. 18. "Janet Yellen seemed to take a dovish stance, but short-term uncertainties will still weigh on the financial market," he added.
Lee went to say, "The Fed left open the possibility of a rate hike in Oct. and Dec." Actually, at a post-meeting conference after the Fed’s announcement, Yellen signaled that the U.S. central bank will turn to be hawkish in its next monetary meeting later this year.
Answering the question about the background of the U.S. Fed’s decision, Governor Lee said, “Yellen mentioned the slowness of Chinese economy as a background of the key rate freeze at the press conference while the Fed’s statement cited just the situation of global economy,” adding, “It is a big change that the Fed said it will consider the global economy in making its decisions on interest policy in the future.”
Vice Finance Minister Joo Hyung-hwan said at a macroeconomic and financial policy meeting in Seoul on the day, “The financial volatility at home and abroad is likely to linger, as it remains unclear when the Fed will start to raise interest rates.”
In the meantime, the won-dollar exchange rate is showing an upward trend as the Fed decided to freeze the key rate. As of 9:35 p.m. on Sept. 18, the won-dollar exchange rate increased 4.6 won from the previous day with 1 dollar equal to 1170.5 won.