Fed, consecutive interest rate cuts... iM證 "Expected to drop to 3.5% next year"

The U.S. Federal Reserve (Fed) has cut the base interest rate by 0.25 percentage points (25bp). Although there was speculation about the re-election of former President Donald Trump in the stock market, the Fed was seen as likely to continue its interest rate cut stance.

According to the financial investment industry on the 8th, the Fed lowered the base interest rate from the current annual rate of 4.75%% to 4.54.75%% at the Federal Open Market Committee (FOMC) regular meeting in November. Following the big cut in September (a 0.5 percentage point cut in the base interest rate at once), the decision to complete the easing policy was made consecutively. Notably, lowering the base interest rate consecutively twice is the first time since 2020.

Regarding the November FOMC, Park Sang-hyun, a researcher at iM證, interpreted it as "there is no change in the stable price condition" and said, "Considering that Chairman Jerome Powell mentioned the possibility of a mid-term interest rate cut several times in the press conference and that the interest rate cut level and range suggested in the September dot plot are still valid, it is interpreted that the Fed's interest rate cut stance will continue not only in December but also next year."

iM證 viewed that the base interest rate would be additionally cut by 25bp at the December FOMC. It was predicted that the base interest rate would drop to the mid-level of 3.5%% if the upward pressure on prices does not intensify next year.

However, researcher Park noted that Chairman Powell did not mention the impact of Trump's re-election on the economy. Chairman Powell emphasized in the press conference that "at this point, it is impossible to know the policy changes, and in the short term, the election results do not affect the decision on the easing policy."

Researcher Park also noted that the possibility of Chairman Powell's resignation is unlikely, stating, "Considering the situation where Chairman Powell's resignation is unlikely, the national bond interest rate is expected to enter a stable phase."

He explained, "There is a possibility that the national bond interest rate will gradually maintain stability due to the expectation of an interest rate cut in December and the stabilization of price increases."

Furthermore, "Not only the U.S. but also major countries like the UK are continuing the cycle of interest rate cuts, and the possibility of major countries strengthening comprehensive policies to prevent economic recession is being raised," he said, adding, "If the scale of China's fiscal stimulus announced today exceeds market expectations, the expectation of global liquidity expansion will also be strengthened."

Jinyoung Ki, Hankyung.com reporter young71@hankyung.com