Chair Yellen Reveals Roadmap for Federal Fund Rate Increase

Federal Reserve Chair Janet Yellen reaffirmed the possibility of raising the federal fund rate this year, but the recent analysis shows that the preferred timing is December rather than September. Reflective of this, the NASDAQ point value rose to 1.34 percent on June 18, the highest rise ever recorded.

At the conclusion of the Federal Open Market Committee’s (FOMC) two-day conference, only two of its committee members voted for a raise in the federal fund rate for next year, while 15 members preferred this year. However, in a noticeable change, the numbers of FOMC members who want only one raise in the federal fund rate for 2015 increased to seven from its previous poll of three last March.

This change of goal of the Federal Reserve Board is based on the analysis that the American economy has been revitalizing since the second quarter of this year, but the rate of its regrowth is slower than what was originally anticipated. Ms. Yellen noted that “the improvement in household spending, job creation and the housing market goes on,”* but nonetheless lowered the estimated American economic growth rate to 1.8 percent, approximately 2.0 percent from its March estimate of 2.3 percent to 2.7 percent. The number is noticeably lower than the estimations of the International Monetary Fund (IMF) and the World Bank, which predicted 2.5 percent and 2.7 percent, respectively.

Ms. Yellen, who seemingly has taken into account the concern of the IMF and the World Bank that the rise in the federal fund rate in the U.S. will impede the recovery of the global economy, stated that “the importance of the timing of a first decision to raise rates is something that should not be overblown, whether it’s September or December or March – what matters is the entire path of rates,” hinting a continued effort in quantitative easing.

After analyzing the FOMC conference and its outcomes, the South Korean government also concluded that the rise in the federal fund rate in the U.S. will have little effect on the South Korean domestic market. There certainly isn’t good reason to overreact in this matter, especially when domestic spending and investments have slowed down due to panic over the MERS outbreaks.

*Editor’s note: Correctly translated, this quote could not be verified.