Fed rate increase widens Korea-US gap to 1 percentage point

  • The Federal Reserve raised its benchmark interest rate, widening the Korea-US policy gap.
  • The 10-year Treasury yield remained at 5.023% after the Fed decision.
  • The Bank of Korea is weighing an October pause against another increase in November.

The Federal Reserve’s 25-basis-point rate increase widened the gap between the United States and South Korea to 1 percentage point, adding pressure on the won and domestic inflation. The Fed’s projections indicate that 16 of 18 Federal Open Market Committee participants see another increase by year-end, keeping upward pressure on government bond yields and potentially increasing volatility in Korean equities, including the Kospi. The 10-year Treasury yield remained at 5.023% after the decision. The Bank of Korea, whose benchmark rate is 3.00%, must weigh an October hold against another increase in November, as well as the timing of a possible move to 3.25%. Analysts say the won’s reaction, inflation and financial conditions will be central to the decision on Oct. 22.

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