Fed Raises Rates to 3.75%-4.0% Amid Persistent Inflation

The U.S. Federal Reserve has raised its benchmark interest rate for the first time in over three years, increasing it by 0.25 percentage points to a range of 3.75%-4.0% on September 16 (local time). This marks the Fed's fourth consecutive rate hike since June 2022 and follows a unanimous decision by all 19 Federal Open Market Committee (FOMC) members to implement the increase.

Chairman Jerome Powell emphasized that inflation has persisted at high levels for too long, with core consumer prices remaining above the 2% target for over five years. The Fed cited ongoing elevated inflation rates in the 3% range and geopolitical tensions as key reasons for the move. The central bank also noted strong economic indicators, including resilient consumer spending, rising productivity, active investment, and steady job growth.

Market expectations had anticipated a more dovish stance, but the FOMC's decision was seen as more hawkish than expected. The dot plot released by the Fed showed that 18 of 19 committee members projected rates to reach 4.1% by year-end, up from 3.8% in June. Chairman Powell stated that 'inflation has been too high for too long' and that financial conditions remain insufficiently tight, leaving room for further hikes.

The U.S. stock market saw modest declines, with the Dow dropping 1.2%, while the S&P 500 and Nasdaq experienced minor falls. The Korean Kospi index fell slightly by 0.04% on September 17. Treasury yields remained relatively stable, though short-term rates in both Korea and the U.S. saw notable increases.

Despite strong economic growth—GDP forecasts were raised to 2.3% for this year (from 2.2%) and unemployment expectations lowered to 4.1% from 4.3%—the Fed remains focused on bringing inflation back to target. Powell highlighted that 'strong economic performance is contributing to upward price pressures,' indicating a continued focus on tightening monetary policy.