Fed Shifts Direction Despite Trump's Opposition... What Is the 'Butterfly Effect' on Our Economy?

[Anchor]

As the Federal Reserve shifted toward a rate hike despite Donald Trump's opposition, significant impacts are also expected for South Korea. A 'butterfly effect' could ripple across exchange rates, the domestic stock market, and interest rates.

Reporter Kim Beom-joo breaks down what we need to watch out for.

[Reporter]

Take a look at the movement of the won-dollar exchange rate early this morning (September 17).

The Fed raised interest rates at 3:00 a.m., and the initial reaction was calm since it was all widely expected.

However, 30 minutes later, when Chair Warsh began speaking at a press conference, the exchange rate suddenly started to surge.

Hearing strong remarks carrying the nuance that he would bring inflation down quickly and not follow President Trump's wishes, the sentiment spread that U.S. interest rates could rise further, prompting people to buy dollars.

With U.S. government bonds yielding around 5% steadily for the time being, some investors decided to head for safe U.S. assets rather than taking risks to invest in Korea.

So, what kind of direct impact does this have on the Korean public?

The immediate concern hitting close to home is inflation.

When the dollar rises, the prices of imported goods purchased from abroad using dollars—ranging from food items like flour and cooking oil to petroleum, steel, and more—refuse to come down.

This makes price stabilization difficult.

This subsequently leads to worries over loan interest rates.

With today's hike, the U.S. benchmark interest rate is now 1 percentage point higher than South Korea's.

If the U.S. raises rates further on its own from here, the possibility of capital outflow increases.

Furthermore, because inflation must also be contained, the pressure on the Bank of Korea to eventually raise interest rates grows.

However, bank mortgage interest rates have already risen by 1 percentage point compared to the beginning of the year.

Therefore, for someone with a 300 million won debt, the monthly interest has increased by 200,000 won, meaning they now have to pay 1.6 million won every month including the principal. If interest rates jump further from here, heavily indebted individuals will face mounting hardships.

Looking further ahead, if the burden grows on U.S. artificial intelligence companies that have borrowed heavily to invest, the semiconductor boom could also be affected.

A decision by the Fed across the Pacific can trigger such considerable repercussions on our daily lives like a butterfly effect.

(Video Editing: Cho Mu-hwan, Design: Seo Seung-hyun)
※ Please note: This article was translated by AI and may contain errors.