U.S. Fed is highly likely to raise interest rates in December

U.S. Fed is highly likely to raise interest rates in December. November. 14, 2015 21:08. jarrett@donga.com.

It’s becoming more of a foregone fact that the U.S. will increase its interest rates within this year. As members of Federal Reserve System (The Fed) hinted strong possibility of higher interest rates, experts and financial circles see that the raise will be made sometime in December. On the news, stock prices in Korea and advanced nations went down on Friday.

“The October 2015 FOMC statement indicated that it may be appropriate to raise the target range for the federal funds rate at the next meeting in December. While the U.S. economy has performed relatively well--as is visible especially in our steady progress toward full employment--major foreign economies have generally experienced weak growth, along with persistently low inflation," Federal Reserve Vice Chairman Stanley Fischer said at a Fed research conference in Washington on Thursday (local time). "Looking forward, given that the effects of the stronger dollar play through gradually to the economy, there is good reason to expect that the drag on GDP growth from the stronger dollar will persist well into next year.”

Stanley Fischer enjoys no less power than Chairman Janet Yellen in the Fed. Having been on the fence in raising interest rates so far, he made a clear turn to favor “hawkish policy (tight monetary policy)” and analysts now reckon that there’s higher possibility for higher interest rates.

On the same day, Federal Reserve Bank of St. Louis President James Bullard said at a discussion that the U.S. central bank should raise interest rates from near zero because inflation near to the central bank’s goals. “I think it is quite possible that the conditions the Committee has established to begin to normalize monetary policy could soon be satisfied,” said William Dudley, the president of Federal Reserve Bank of New York.

Analysts in the U.S. also see that increasing the rates is quite possible within the year. The Wall Street Journal survey shows that some 92 percents of experts like economists reckon that the raise will be made sometime in December. At the same survey made in October, only 64 percents saw the possible increase within the year.

More people believe higher possibility of rate increase as job index has greatly improved and the anxiety of global market including China’s has subsided to some degree. Higher prices by Washington, however, could accelerate the capital outflow from emerging nations and push up the market rate in Korea, deteriorating already-weak conditions of household and corporate debts. “The indexes of industrial production and housing market to be released next week are expected to be favorable. If the upcoming speeches by the Fed members show further momentum for higher prices, the likelihood during December will be even stronger,” said Goh Seung-hui, researcher at Daewoo Securities.

Along with stronger likelihood of higher prices, the Dow Jones Industrial Average fell by 1.44 percent point and European markets saw the decrease as well. The KOSPI finished at 1,973.29, a 20.07-point (1.01 percent) drop from the previous day. Foreign investors sold their shares Friday worth of more than 210 billion Korean won (approx. 180 million U.S. dollars) from the KOSPI market. The won-dollar exchange rate went up 5.6 won to 1,160 won range.