Global High-Interest Rate Era Begins: The Real Reason KOSPI Surpassed 9,000

The eyes of the world were on the first FOMC meeting under the "Kevin Warsh Fed." Would he reveal a more accommodative stance that aligns with the "Trump code" from his very first meeting? Would he turn a blind eye to the burden of high oil prices following the Iran war by bringing up the "trimmed mean PCE," arguing that temporary shocks distort inflation? Despite various speculations, the new Chair, Kevin Warsh, emphasized price stability, stating, "Over the past five years, the Fed has not put its full effort into achieving its inflation target." Although interest rates were frozen, his stance was more hawkish than the market had generally anticipated. As recently as the beginning of this year, the prevailing view was that the U.S. would cut rates about twice this year, but that has now become a distant memory. The market consensus now is that there is a high probability the U.S. will raise rates at least once this year.

To a buzzing market, Kevin Warsh did not offer a single hint. The Chair did not even place a dot on the dot plot, which shows the future interest rate projections of individual FOMC members. The statement released on the FOMC meeting results was also unusually short. It was barely enough to fill half an A4 page in a standard font. Warsh's message is that this will be the "new normal" going forward. "The Fed should not talk too much. We will no longer provide forward guidance that allows the market to predict the direction of monetary policy." For a market accustomed to a powerful Fed that provides detailed explanations, uncertainty is bound to grow. For the time being, the market is highly likely to fluctuate whenever economic indicators are released one by one. Although told not to just hang on the Fed's every word, the atmosphere may instead become one where the market watches even more closely, wondering "Will the Fed change its stance this time?" with every new data release.

In any case, as even the U.S. shifts closer to raising interest rates, the global trend of rate hikes is becoming more apparent. Earlier, Japan raised its interest rate on June 16, entering an "era of a 1% key interest rate," its highest in 31 years. The European Central Bank (ECB) has also returned to a tightening stance for the first time in three years. The Bank of Korea is also taking a July rate hike as a given. Some even forecast that instead of just one or two hikes, the central bank will raise the rate by 1 percentage point over the next year from the current 2.5%. Looking at recent market interest rates, they have already risen to a level that seems to price in a key rate of 3.5%.

As of the beginning of this year, no one expected the current interest rate environment. The war in Iran changed everything. As the war dragged on with energy shortages and supply chain disruptions driving up prices, "inflation" became the most feared bomb in the economy. Consequently, major economies have pivoted toward raising interest rates. Then, why is the rate-hiking trend across countries beginning in earnest now, when the U.S. and Iran have exchanged a memorandum of understanding to end the war? How long and to what extent will this rate-hiking cycle continue?

In fact, looking at South Korea's major commercial banks, the upper limit of mortgage rates has risen to around 7.3%, a level similar to the autumn of 2022. This means the situation has become similar to the "high-interest rate shock period" when the Korean real estate market turned downward for the first time in nine years amid rapid global rate hikes.

Will this hiking cycle unfold as shockingly as in 2022? Will the stock and real estate markets shake together, just as they did in 2022? If so, how do we explain the fact that the KOSPI index actually surpassed 9,000 points for the first time in history in the Korean stock market right after Kevin Warsh's "FOMC debut"? Who will be the one "smiling" in this interest rate environment?

For South Korea and Japan, there is also the issue of exchange rates. The interest rate environment is peculiar not just in Korea, but in Japan as well. There have been constant observations that if Japan begins to raise rates in earnest, the fear of an "unwinding of the yen carry trade"—similar to what happened in 2024—could strike. The concern was that if the cheap yen, borrowed at virtually zero interest to invest worldwide, rushed back to Japan, asset markets including New York and Korean stock markets would collapse. However, even though Japan declared the "era of a 1% key interest rate" for the first time in 31 years and announced plans to phase out liquidity, bets on a weaker yen have reached their highest level in nine years. Far from fearing the "unwinding of the yen carry trade," the Bank of Japan's tightening measures seem to have no effect at all. So, what is the situation for South Korea?

A puzzling start to the "interest rate hike cycle." In these unpredictable times, where on earth should I put my money? What should I base my economic activities on? In this episode of <Smart E>, reporter Kwon Ae-ri clearly breaks down the current structure of the market, where "things are not always what they seem."

1. Introduction
2. The "Debut Points" of the New "Trump-Picked" Fed Chair...
3. Even with an Interest Rate Bomb... Are Semiconductors "Invincible"?
4. Even After the War, "No Way We're Going Back to Old Prices": Oil Tankers Still Playing a Waiting Game
5. Yen Fleeing Abroad, Returning to Japan? "No Need to Go Back Just Yet"
6. South Korea's Key Interest Rate: Four Hikes by Next Year?

Reported by Kwon Ae-ri | Camera by Park Woo-jin and Hwang Se-hoe | Produced by Kim Eun-ji | Edited by Chae Ji-won | Designed by Chae Ji-woo | Produced by Knowledge Content IP Team
※ Please note: This article was translated by AI and may contain errors.