The US Federal Reserve is not expected to unveil a surprise shift in its monetary policy position following this week's rate-setting meeting, market analysts said Tuesday.
The Federal Open Market Committee is tipped to raise interest rates at the Tuesday-Wednesday meeting to be presided over first by new Fed Chair Jerome Powell.
A growing number of market experts have predicted that the US Federal Reserve will jack up interest rates four times this year, from an earlier estimate of three, on solid economic growth and rising inflationary pressure.
Market watchers have expressed concerns that the FOMC may accelerate its monetary tightening as it has turned more hawkish amid a bullish assessment of the world's largest economy.
But most analysts here said the Fed will not likely make a market-jolting decision since the market has already factored in the Fed's expected rate rise in March.
"The Fed is expected to jack up interest rates at this week's meeting and continue to normalize its monetary policy this year but will not conduct rate hikes at too fast a pace," said Yoon Yeo-sam, a researcher at Meritz Securities Co. "It may be burdensome to Powell to disclose information at his first news conference after a rate-setting meeting, which could jolt the market."
Fed Chair Jerome Powell (Yonhap)
Koo Hye-young of NH Investment & Securities Co. expressed a similar view.
"The Fed is expected to raise interest rates by 0.25 percentage point at this week's meeting and revise up its inflation forecast for next year," she said.
"In line with its policy tack of gradual rate hikes, the Fed will likely adjust the pace of rate rises after it becomes more confident about inflation."
Should the Fed raise interest rates as is widely expected, the federal funds rate would hover above South Korea's benchmark rate, with the gap likely to gather pace in the coming months.
Currently, South Korea's base rate stands at 1.5 percent, the same as the upper end of the US policy rate. In November, the Bank of Korea hiked its key rate by a quarter percentage point to 1.5 percent amid clear signs of an economic recovery, ending its 16-month standpat stance.
Despite the possibility of a rate reversal in the US and South Korea, analysts said the BOK is more likely to jack up key rates in July than in May, given the downside risks for Asia's fourth-largest economy.
"There is a greater possibility of the BOK carrying out a rate increase in July as the local economy is faced with more downside risks than expected earlier," said Yoon of Meritz Securities. "The government's extra budget meant to create more jobs may come as a drag on the BOK's rate raise in May."
Kim Ji-man, an analyst at HMC Investment Securities Co., echoed the view.
"The BOK is highly likely to leave the benchmark interest rate unchanged in the first half of the year due to low inflation and growing trade pressure from the US," Kim said.
Some analysts, however, predicted the BOK to raise interest rates in the second quarter and carry out another rate hike in the second half of the year to rein in snowballing household debt and the property market. (Yonhap)