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Fed Rate Hike Widens Gap to Largest in 22 Years for S. Korea

Written: 2023-03-23 13:18:27Updated: 2023-03-23 15:52:00

Fed Rate Hike Widens Gap to Largest in 22 Years for S. Korea

Photo : YONHAP News

Anchor: The Federal Reserve upped interest rates on Wednesday in a bid to stem inflation. The U.S. central bank took a baby step of raising rates by point-25 percent as it fretted over the impact of a recent collapse of banks that the Fed chair dubbed was equivalent to a rate hike. 
However, as our Kim Bum-soo reports, the decision in the U.S. has expanded the rate gap between South Korea and the U.S. to its widest in 22 years.

Report: The U.S. Federal Reserve has raised its key interest rate by a quarter of a percentage point in its continuing effort to rein in inflation.

[Sound bite: US Fed Chair Jerome Powell]
"At today’s meeting, the Committee raised the target range for the federal funds rate by a quarter of a percentage point, bringing the target range to four and three quarters to five percent. And we are continuing the process of significantly reducing our securities holdings."

After a two-day meeting of the Federal Open Market Committee ended on Wednesday, Fed Chairman Jerome Powell explained the rate decision.

[Sound bite: US Federal Reserve Chair Jerome Powell]
"We believe, however, that events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes."

The "baby step" came as some economists have suggested that the Fed should pause rate hikes. The U.S. central bank’s fight against inflation has become tougher in recent weeks due to a potential financial crisis following the collapse of several banks.

[Sound bite: US Federal Reserve Chair Jerome Powell]
“Such a tightening in financial conditions would work in the same direction as rate tightening. In principle, as a matter of fact, you can think of it as being the equivalent of a rate hike or perhaps more than that... ”

Despite opting for an increase of only 25 basis points, the new target range is the highest level since 2007.

The Bank of Korea’s benchmark rate currently stands at one-point-five percentage points lower than the Fed’s.

The largest gap in 22 years could result in capital outflow from the South Korean financial market.

Fed policymakers projected rates would end 2023 at about five-point-one percent, unchanged from their median estimate from December, if the economy evolves as projected. 
Kim Bum-soo, KBS World Radio News.

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