Authorities to monitor market with caution after Fed's rate increase

Financial authorities pledged to closely monitor the market with caution following the Federal Reserve’s quarter percentage point increase of the federal funds rate Wednesday.

Finance Minister Choo Kyung-ho, second from left, at a meeting with chiefs of financial organizationsin central Seoul on Thursday. [YONHAP]

Financial authorities pledged to closely monitor the market with caution following the Federal Reserve’s quarter percentage point increase of the federal funds rate Wednesday.

“The possibility of the recurrence of uncertainties in the global market and the expansion of the uncertainties cannot be excluded,” said Finance Minister Choo Kyung-ho in a meeting in central Seoul Thursday. The world economy is now “in the process of adjusting to the new environment of intense monetary tightening.”

The Federal Reserve raised the target federal funds rate by a modest 25 basis percentage points, the ninth consecutive increase in one year since the central bank started the current rate-raising cycle to combat inflation.

The rate is now in a range of 4.75 and 5.00 percent.

The recent collapses of financial institutions have put the U.S. Federal Reserve in a bind.

In early March, Federal Reserve Chair Jerome Powell warned that the Fed could more aggressively raise interest rates if the economy grows too quickly.

Economists have been projecting a 50-basis-point increase, but the views changed following the failure of Silicon Valley Bank (SVB) on March 9 and other banks, including crypto-focused Silvergate Capital and Signature Bank.

Credit Suisse, once the world’s eighth-biggest publicly-traded bank by market capitalization, was bought by Zurich's UBS on Sunday amid the company’s internal issues and the growing fears spreading in finance.

Goldman Sachs said on March 13 that it “no longer expects” the Federal Reserve to raise interest rates, citing “considerable uncertainty about the path beyond March.”

Sheila Bair, the former chair of the Federal Deposit Insurance Corporation, told CNN the Federal Reserve needs to pause its war on inflation.

February inflation data matched the 6.0 percent expectations and was down from 6.4 percent in January.

BY JIN MIN-JI [jin.minji@joongang.co.kr]