US Treasury Secretary Janet Yellen speaking. news
Treasury Secretary Janet Yellen said on the 22nd (local time) that the Fed’s inflation target of 2.0% may not be reached until next year. The day before, Fed Chairman Jerome Powell announced that he would not consider a rate cut until he was convinced that inflation was heading down to 2%, after three consecutive giant steps (0.75 percentage points increase in the base rate). Meanwhile, the US Treasury Secretary also emphasized the unavoidability of intensive monetary tightening.
“By 2023, it could be difficult to meet the Fed’s inflation target,” Yellen said. “But I am confident the Fed has the ability to bring inflation down,” he said.
On the 23rd, the KOSPI closed at 2290.00, down 1.81% (42.31 points) from the previous day due to concerns about an economic recession caused by the US key interest rate hike. This is the lowest level since October 30, 2020 (2267.15).
Exchange rate war – KOSPI declines due to interest rate hike
The global exchange rate war is becoming visible as central banks around the world have also raised interest rates one after another in response to intense austerity by the US Federal Reserve (Fed). On the 23rd, in the Seoul foreign exchange market, the won-dollar exchange rate closed at 1409.3 won, down 0.4 won from the previous trading day (the won rose).
On the 22nd, when the Federal Reserve raised its base rate, eight countries, including the UK, Switzerland, the Philippines and Indonesia, started to raise their base rate significantly. Seven of them raised interest rates by 0.5 percentage points or more. A domino effect on interest rate hikes is emerging on the prospect of accelerating foreign exchange market instability due to the strengthening of the dollar.
However, as the possibility of an escalation of the Ukraine war has recently increased, concerns are rising that the sparks of price instability may be rekindled despite a series of rate hikes by central banks around the world. “Russia’s invasion of Ukraine is not over, and as Russian President Vladimir Putin is weaponizing oil and gas in this war, we are vulnerable to supply shocks,” Yellen said.
As the U.S. and the European Union (EU) are expected to tighten sanctions on Russian crude oil in response to the escalation of the Ukraine war as President Putin issued an order to mobilize reserve forces, oil prices, which had been stable, could rise again. I mean.
But Secretary Yellen dismissed concerns about a recession and said it was necessary to continue raising interest rates. “I don’t want to say that the unemployment rate is going to go up significantly,” he said.
The remarks effectively refute former Treasury Secretary Larry Summers’ prediction that the unemployment rate will be above 5% for at least six months before inflation falls below 2.5%. “The situation in the United States, where there are two (vacant) jobs for every unemployed person, is putting pressure on inflation,” Yellen said.
However, as concerns about a global economic recession continued to spread, major stock markets in each country fell. While the KOSPI fell below 2,300 for the first time in over two months, the Nasdaq on the New York Stock Exchange also fell 1.37% to close at 11,066.81. The S&P 500 also fell 0.84%. The domestic bond market was also affected. The 10-year government bond yield rose 0.203 percentage points to 4.208% during the day.
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