The Federal Reserve once again froze the benchmark interest rate, hinting at the possibility of a rate cut in September. Let's hear from experts about how global economic movements will affect South Korea. Here with us is Geon-yeong Oh, Head of the WM Group at Shinhan Bank. Welcome. Hello. Did Chairman Powell finally give a clear signal for a rate cut? Yes, now the signal for a rate cut is practically there. It's not a done deal yet, but it's getting much closer to a rate cut. This was mentioned. Next, the Federal Reserve is a committee composed of several members. Among them, there was talk that overall members agreed. So, even looking at the spectrum of various opinions within the Fed, the signal for a rate cut has strengthened. Therefore, it seems appropriate to interpret it as hinting at a rate cut.

Long time no see, but we've been talking about a rate hike for a while, right? When will the reduction happen? I was really curious. Still, the fact that such signals have intensified is like the end of a long wait, right? Yes, that's correct. When I talked a lot back then, it was in 2022. In reality, the last rate hike was in July last year. There was a rate hike, and then it was a bit difficult, so there was talk of reducing it quickly. Even at the beginning of this year, it kept dragging on, but now, in September or November this year, it has become a topic of discussion, and practically, the possibility has become stronger. You can interpret it like this now. So, the possibility of the U.S. lowering the benchmark interest rate in September is about 100%. Well, there's no such thing as 100% certainty, and in fact, it's hinted at, but today, Powell...

The chairman also mentioned that in September, there could be a discussion on raising interest rates. However, in fact, what was mentioned in a relatively public place where attention from all over the world gathers is that the possibility of a rate cut is very high. However, there is no certainty, as Chairman Powell also mentioned. If there are no particular issues at that time, a rate cut may be considered. But unexpected issues could arise, which could change the situation. So, the possibility of such uncertainties is being expressed by some of the Federal Reserve members now. They are saying that they won't tie their hands. By indicating the possibility of a rate cut in September too strongly, if unexpected variables arise in the meantime, it could lead to problems with being tied down. So, it is true that an ambiguous nuance was thrown out, considering what has happened so far.

It can be seen very clearly that the possibility of a rate cut in September is indicated very clearly. It would be good if you could speak more clearly from the perspective of the listener. Yes, it seems that there is a habit of leaving things out. After all, this has a significant impact on the global asset market, doesn't it? But as I mentioned earlier, there could be some unexpected variables. What can we see in these unexpected variables? For example, when conflicts arise in the Middle East region like Israel, Iran, unexpected spikes in international oil prices can occur. This can lead to an increase in energy prices, which can in turn push up inflation. Yes, uncertainties like this can hinder the rise of gold. This is something that cannot be predicted. Another point I can mention is that in reality, the market itself is [INCOMPLETE]

If you cheer too much about it, the market itself becomes too heated. The stock market can get overheated, but in fact, among the concerns of the Federal Reserve, the real estate market is also an issue. When real estate prices in the U.S. get too high, the burden of housing costs increases. As the burden of housing costs increases, it puts pressure on prices again. So, rather than filling the gap on their own, the Fed seems to have chosen to leave possibilities open and signal a direction. Nevertheless, many media outlets used to write about hawks or doves, but today in the media, they all refer to doves. However, in fact, this time, whether hawkish or dovish, they talked about quite similar things. Why is that? Because hawks agree to lower interest rates, and then doves also agree. This is because doves talk like this: now, if the economy stagnates...

Because we can anticipate what is coming, we should quickly raise interest rates. And what the opposition party says is that if unexpectedly the economy falls into a recession, then we would need to lower interest rates to a much greater extent than anticipated. Inflation has not yet ended, and if we were to raise interest rates too much while the spark of inflation still remains, it could actually fuel inflation concerns. Therefore, the suggestion is to proactively lower rates first to prevent a sudden collapse, which would allow for a gradual decrease in interest rates. So, by first lowering rates once, we can keep interest rates low in the future. Overall, it is said that taking a preventive measure first by lowering rates once and overall, controlling inflation with high interest rates is a wiser approach.

Instead of preemptive rate hikes, we should proceed slowly. But the Fed is not pursuing preemptive rate hikes anymore; it's the beginning of a rapid rate cut cycle that they are fighting against. However, whether it's the Fed or the ECB, if you look at the forefront, there is a consensus on rate cuts. Yes, whether it's the Fed or the ECB, they are giving signals of rate cuts now. There have been some changes in the wording of the central bank statements, so could you please show the graphic again? There were some changes in the wording of this statement. The inflation target is 2%, and there has been limited progress towards that target. In June, the word limited was used, indicating some progress in recent months. Actually, I don't really understand the difference there; is there a difference in those words? Instead of limited progress, you should consider using the word some progress, which indicates a much greater advancement.

But now, the term progress itself is approaching the inflation target that the Fed aims for, which is 2%. It is currently approaching around 2.6 to 2.5. So, rather than approaching 3%, it is approaching 2.5%, indicating a much greater magnitude of progress. Therefore, instead of using the expression limited, we are now using the expression partial. In other words, it means that we are getting much closer to the target, and there is somewhat less burden regarding inflation. This is the possible interpretation. So, if they lower it in September, will they lower it once this year or twice? This is the difference between hawks and doves, as mentioned earlier. In reality, as for this year, as I mentioned earlier, the Fed hawks have already stated back in June that a single rate cut would be sufficient. However, the Fed doves...

It may not be possible to have turns, and we are talking about that level. But now, let's talk about our market. The financial market does not like interest rate cuts, right? So, if we did it three times, it would be good. If the three are the same, do we need to say they are all the same? Expectations in the market influence each other, and intentions and a bit of lee are created. Then, how can we evaluate this? Depending on how the actual interest rates move after the market reacts. If, as mentioned, the economy starts to decline rapidly despite lowering interest rates too much, then at that time, the speed of interest rate cuts could be increased very quickly, two or three times could be possible. So, today at Powell's press conference, when asked about the signal of interest rates, can they be lowered significantly? There is no discussion on that yet, and we will decide while looking at the data. Let me emphasize this point once again.

I think I will lower it twice personally because the team leader always provides accurate analysis. I think there is a possibility of two consecutive reductions, starting the reduction in September, taking a break once after that, and also a possibility of reduction in December. As I mentioned, we need to look at the data a bit and consider. In September, one of the concerns is the presidential election. Didn't former President Trump publicly say not to lower interest rates before the presidential election? Yes. The reason I am cautiously saying this is that unexpected variables can certainly emerge. In particular, what the Trump camp is talking about is that Trump has actually been talking about the Fed lowering interest rates since early this year, pushing for the Democratic Biden administration. So, this is unfair.

So, when it comes to interest rates, it shouldn't be done. And regarding the power of the chair, if such actions were taken, even mentioning the possibility of firing, it was a bit like a threat. From the perspective of the Fed, rather than paying attention to this, they probably focus on the part that they should be concerned about. Clearly, if something like an interest rate change was made, there could be a lot of noise here, right? In that case, even if you lower the interest rate, you would want to create very clear evidence that no one can argue against, no matter who looks at it. So, even if you want to lower the interest rate, you would be careful unless very clear evidence is perfectly established. Therefore, what we are looking at now is one of the variables in September. It seems that there won't be any interest rate cuts. I haven't personally interviewed that person, but even today, the question came up during the press conference when I was about to interview.

Then, if this can be intertwined with political issues, and if you ask if it could be related to political issues, our stance is to firmly state that fundamentally, our performances are independent of politics. We do not use monetary policies to favor any particular faction or push for it. We only focus on inflation and growth. I want to emphasize this once again. We will be able to see in September whether Trump is taking notice or not. If the US lowers interest rates in September, we will lower them around October. There are such forecasts. Now, one more thing, many people say that if the US lowers interest rates, our country can also lower them. Many people say this. In fact, it's convenient to say that. But these days, when interest rate cuts are made, the market already knows first. Interest rate cuts are because it's already been hinted at or practically revealed. So, the market knows first when interest rates are cut.

As we start to reflect, actual market interest rates start to decrease first. So, if you look, recently, mortgage rates have also dropped a lot. So, if interest rates in the U.S. have been decreasing even before the U.S. cuts its benchmark interest rate, the burden on countries like South Korea is reduced. Just by indicating that the market interest rates have decreased, we can imply something. So, in fact, the burden has decreased. Instead of looking at things related to the U.S., it seems that institutions like the Bank of Korea are more concerned with domestic realities and internal factors. For example, it seems clear that inflation has entered now, but as we are now in a cautious and complex situation when lowering interest rates, we cannot ignore the fact that there are concerns about household debt, right? That's correct.

I mentioned this before. In July, the Monetary Policy Board was quite an important point. Actually, before the U.S. lowered its benchmark interest rate in September, there was some expectation in the market that a rate cut might be possible in August. In the August Monetary Policy Board meeting, there was some expectation for a cut. However, in order to cut rates in August, you need to signal somewhat in July. Therefore, you need to give a somewhat strong indication. In the July Monetary Policy Board meeting, the overall comments were something like this: When looking at inflation and growth, we somewhat support a rate cut at the moment. However, the problem now is twofold. First, how the U.S. moves can be a variable, and second, as you mentioned, there is a concern about household debt and the real estate market. Isn't the real estate market in the Seoul metropolitan area showing signs of volatility again?

The prices themselves are already high, so when real estate prices rise and the buying demand is attached, it starts to bring a sharp increase in household debt. Therefore, if interest rates are lowered haphazardly at this time, it may stimulate the real estate market, which is already bubbling up, leading to another surge in real estate prices and an increase in household debt. Instead of boosting the economy by lowering interest rates and reducing interest burdens, it might be more effective to raise housing costs, which could dilute the positive effects of interest rate cuts. This could lead to the argument that rather than stimulating the economy by reducing interest rates, it might end up diluting the positive effects. From the perspective of the Bank of Korea, it seems to be paying attention to two aspects: the flow of household debt and real estate prices. Yes, that's right. It seems that interest rates are likely to be lowered within this year. First, it seems necessary to take a look at the real economy. However, the minutes of the Monetary Policy Board meeting were announced yesterday.

Two days ago, the minutes of the Monetary Policy Committee were released. On the monetary policy side, there is some preparation for an interest rate cut, but the concerns about the real estate market and household debt are significant. Therefore, this is considered a macroeconomic stability policy. For example, there are regulatory policies like the Debt Service Ratio (DSR) to limit the increase in household debt. It seems that they will carefully move after confirming the effects of these policies. This is what we call policy mix. We may pay attention to this direction a bit. Anyway, both our country and the United States are heading towards the same season, but there are places going in the opposite direction. Japan raised interest rates. So, is the era of super low-interest rates over? How should we see this? First of all, I can mention two things. In fact, Japan, back in 2022 and 2023, when the world was raising interest rates aggressively due to inflation concerns, Japan was in a unique position due to its domestic market.

I was weak, and because the level of deflation was so high, we couldn't raise interest rates. Instead, we maintained negative interest rates until March of this year. So, while interest rates in other countries were rising a lot, Japan was not raising interest rates. Therefore, the yen is expected to weaken because as the interest rate difference widens. However, as the yen weakens too much, Japan's import prices rise, leading to inflation in Japan. But since Japanese people were used to deflation, when they suddenly encounter inflation, they end up living very difficult lives. As a result, they can't bear it due to inflation. So, the cause of inflation needs to be addressed, which means addressing the yen. And the cause of the yen is not the interest rate difference.

To hedge, Japan also had to follow up with a belated interest rate hike. That's why they eliminated negative interest rates for the first time in March. And just the other day, Japan raised its benchmark interest rate, currently set at 0.25%. Therefore, they need to reduce the interest rate differential between the two countries to bring about a weakening of the yen that can be controlled. So, what you mentioned, if Japan starts raising interest rates, isn't it essentially the end of yen depreciation? It's crucial to determine where the yen level is defined. For example, if the yen is at 140 yen per dollar, breaking below that level will still take some time. However, I think I can mention this. It seems that there have been strong signals to move away from drastic yen depreciation. So, I think it could be said that we are at a turning point in terms of expressing the extent of yen depreciation. So, for those who have already bought a lot now, um...

A laughter flower bloomed, and then, Anene. But when did you start buying from now on? It's quite important, the timing. For example, when there was talk that Japan would eventually raise interest rates following the U.S., I was trying to buy yen since the end of 2022. In South Korea, there were some who bought yen at that time. Deposits increased a lot. At that time, the exchange rate was around 970 to 980 won, but now it has dropped to 850 won and has risen to about 910 to 920 won. So, for those who bought at 980 won, their losses have decreased a bit, but they are still in a negative position. So, I will give you one tip. When you bet on the foreign exchange market by looking at just one news, it can be quite a difficult play for individuals.

So, when I used to study, the most common thing I heard was that even ghosts don't know about exchange rates. The more I study now, the more I empathize with that statement when I look at the market. Therefore, rather than betting on whether the exchange rate goes up or down, it is important to focus on the effects that the exchange rate brings. You need to observe and analyze these effects for a long time. Even if the yen, for example, shifts to an appreciation trend, the change in a country's currency is like turning a large ship. It moves slowly, unlike small boats that turn quickly. In the case of the aviation industry, they move by observing the fundamentals of the currency of the respective country. Therefore, these things tend to move slowly, and it is risky to approach them from a short-term perspective. I advise you not to buy or sell based on news. This was the advice from an expert. Up to now, Ogonyoung, Shinhan Bank.

I was the head of the WM headquarters team. Thank you. Thank you.

[뉴스나우] 뚜렷해진 美 '9월 금리 인하' 신호...한은 결정에도 영향? / YTN

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