Fed's team unchanged despite leadership change; FOMC expected to freeze rates

Global financial markets are keenly awaiting the U.S. Federal Reserve's Federal Open Market Committee (FOMC) meeting on June 16-17, marking the first gathering under new Chair Jerome Powell. While a decision to freeze interest rates is widely anticipated, the focus is shifting towards Powell's inaugural remarks and any signals about the Fed's future monetary policy direction.

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Despite Powell's appointment, the Fed's hawkish color will not change.

Recent U.S. consumer price index data showed inflation rising to 4.2% in May, a three-year high, although core inflation excluding food and energy remained relatively stable. This inflationary pressure, coupled with robust employment figures, has led many domestic and international financial institutions to predict a more hawkish stance from the Fed. The U.S. policy rate currently stands at 3.50-3.75%, significantly higher than South Korea's 2.50%.

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The 'easing bias' phrase in the FOMC statement will be deleted and replaced with neutral language that opens up possibilities in both directions.

Analysts suggest that the Fed's previous meeting minutes already indicated a division among policymakers regarding the pace of monetary easing. Three members reportedly dissented against maintaining an "easing bias" in the statement, signaling a lean towards tighter policy. This inclination is expected to continue under Powell's leadership, with expectations that the FOMC statement will remove language suggesting a bias towards rate cuts and adopt more neutral phrasing.

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The strong U.S. employment data and increasing upward pressure on prices have deepened the Fed's hawkish stance. As expectations for rate cuts fade, concerns about rate hikes within the year are growing.

Financial experts anticipate that the Fed will likely maintain its current interest rate freeze for the time being but will emphasize the possibility of future rate hikes. Factors such as sustained high oil prices, potential supply chain disruptions stemming from geopolitical tensions, and strong employment data are contributing to concerns about persistent inflation. This outlook suggests that expectations for rate cuts this year are diminishing, replaced by growing concerns about potential rate increases.

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Looking at recent statements from Fed officials, the possibility of a rate freeze or hike this year has increased.