ⓒYONHAP News

The U.S. Federal Reserve raised its key interest by 50 basis points, bringing the target range to four-point-25 to four-point-five percent. This has further widened the gap with the Bank of Korea's(BOK) rate to a 22-year high of one-point-25 percentage points, prompting the central bank to consider steeper rate hikes next year. 

The U.S. Federal Reserve announced its latest "big step," adding half a percentage point to its benchmark on Wednesday. 

The lending rate now stands at a 15-year high of four-point-25 to four-point-five percent.

Amid weakening inflation, the latest increase is a deceleration by the Fed after four consecutive "giant steps" of 75 basis points. 

Nevertheless, Chairman Jerome Powell suggested that the Federal Open Market Committee(FOMC) will maintain its upward momentum and a vice grip on fiscal policy for some time to offset inflationary pressure.

[Federal Reserve Chairman Jerome Powell]

"With today's action, we have raised interest rates by four and a quarter percentage points this year. We continue to anticipate that ongoing increases in the target range for the federal funds rate will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to two percent over time."

Further rate hikes are also in the offing, as policymakers projected the key rate to reach a median estimate of five-point-one percent by the end of 2023.

[Federal Reserve Chairman Jerome Powell]

"The inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases. But it will take substantially more evidence to give confidence that inflation is on a sustained downward path." 

Following the Fed's move, the Bank of Korea is more likely to take a "baby step" of a zero-point-25-percentage-point rate increase next month, but the widened gap between the two sides has sparked concerns this will lead to an outflow of foreign currency and a crippled Korean won.

Although BOK Governor Rhee Chang-yong last month mentioned a possible peak rate of three-point-five percent next year, up from the current three-point-25 percent, the central bank may set its sights higher to keep pace with the Fed.

The Bank of Korea(BOK) says it will keep a close eye on changes in the nation's financial and foreign exchange markets and take timely measures to stabilize the markets should volatility expand. 

The central bank revealed the stance during a meeting chaired by Senior Deputy Governor Lee Seung-heon on Thursday. The meeting was held to review the possible impact that the U.S.’ move to raise its benchmark short-term interest rate by zero-point-five percentage points on Wednesday could have on domestic markets.

Lee said though concerns about the U.S. tightening its monetary policy have eased with the Federal Reserve slowing the pace of its interest rate hikes, the possibility that financial markets will see more volatility cannot be ruled out amid woes over a global economic recession and possible policy changes that major economies could take to fight inflation.