Some wiggle room
Published: 19 Mar. 2015, 23:15
But the Fed unequivocally stated that it would not raise the rate next month. While professing it will elevate the prime lending rate when convinced that the U.S. inflation rate approaches 2 percent, the Fed drastically lowered its estimates for this year’s inflation rates from 1.0-1.6 percent to 0.6-0.8 percent. Even though the Fed could raise rates in June when the next round of meetings takes place, it could occur later than that. Financial experts forecast that the speed and margin of increase will not be steep due to the noticeable slowdown in consumer prices stemming from a strong U.S. dollar and the fall of international crude oil prices.
As a result, the Bank of Korea can take a breather for a moment. If the Fed had decided to lift its benchmark rate in the first quarter of this year, our central bank could have had more trouble choosing the path of lowering rates. Even before the effect of lowered benchmark rates is felt, an argument for raising the rates could have triggered confusion about government policies and further depressed the anemic economy. The government must carefully examine the idea of implementing other policy measures like additional cuts in the rates until their stimulus effect is felt, while being prepared for the Fed’s benchmark rate hikes.
The government must wisely use the breathing room it has been given after the Fed’s decision. It must concentrate all energies on rejuvenating the economy. The first priority, of course, should be placed on finding effective ways to raise public trust in government policies after successfully wrapping up the gargantuan challenges of labor market reform and deregulations. In particular, the financial authorities must brace for huge repercussions from the Fed’s rate hikes by reducing the pace of rapidly growing household debt.
Despite a self-serving mantra that we have a relatively strong economic fundamentals compared with other countries, a crisis can infect our economy via other emerging economies. Only when the government strengthens the economy will it be free from the risk of collapse. The government must not waste the breathing space it gained from the Fed.
JoongAng Ilbo, Mar. 20, Page 30
with the Korea JoongAng Daily
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