The Federal Reserve in the United States will announce the benchmark interest rate early tomorrow (19th) morning. It appears that this time they will lower the rate that has been fixed for 14 months. The focus of the global financial markets is on how much the Fed will cut the interest rate.
Reporter Kwon Ae-ri looked into the potential impact on our economy.
Due to the economic shock from COVID-19, the United States lowered the interest rate to near 0%, but rapidly raised it in response to significant inflation starting from March 2022. Following the last interest rate hike in July last year, the benchmark interest rate has been fixed at 5.25-5.5%.
With the Federal Reserve judging that inflation has stabilized, if they decide to lower the benchmark interest rate for the first time in 14 months at 3 a.m. tomorrow, it is expected that there will be a global trend of interest rate cuts.
Countries like Canada, the EU, and the UK have also preemptively lowered their interest rates in consideration of the U.S. rate cut.
The focus is on the speed of the interest rate cut in the U.S.
Amid arguments that the Fed needs to cut interest rates further to prevent an economic recession, there are expectations that a larger cut of 0.5%, known as a ‘Big Cut’, could occur instead of the usual 0.25% cut, known as a ‘Baby Cut’.
[Amy Kylie/CNN Reporter: There are concerns in some quarters that the Federal Reserve’s efforts to lower inflation could lead to an economic recession.]
However, there are also strong arguments that the U.S. economy remains strong, with estimates suggesting an annualized growth rate of 3% in the third quarter.
[Park Seung-jin/Hana Securities Research Center Analyst: If growth forecasts by the Federal Reserve are not significantly reduced, there could be room for reassurance in the process of observing asset markets.]
If the U.S. interest rate cut is confirmed, there are forecasts that the Bank of Korea will also lower interest rates in October, considering our situation of prolonged domestic weakness.
However, there are concerns about a surge in household debt due to recent increases in house prices, and how much the increase in household debt in September will be curbed is likely to be a crucial factor in the interest rate decision.
(Video Editing: Kim Jin-won, Design: Kim Han-gil)