U.S. President Joe Biden mentioned a

Prices-Employment-Oil prices triple in U.S. now

Considering that personal consumption expenditure (PCE) prices rose 2.8% year-on-year at the end of March, the rate of increase in consumer prices is quite high. PCE prices calculate inflation rates based on the weight of items that individuals actually spend, and are data that the Fed uses as an important indicator when implementing interest rate policies. "We're getting closer to what we want," Powell said after the PCE price announcement. However, CPI prices clearly show that the market is not moving as expected by the U.S. Fed.

In addition to prices, most indicators released by the U.S. in April are "hawkish." The number of non-agricultural employees, one of the Fed's benchmark employment indicators, increased by 303,000 in March, exceeding the market estimate of 212,000. The number of non-agricultural employees has been on a high rise since November last year, exceeding market expectations. The unemployment rate also hit 3.8% in March, lower than market expectations of 3.9% as well as the previous month. If employment increases and prices rise, it does not make sense for the U.S. Fed to mention a rate cut.

External conditions are also hawkish. International oil prices (based on WTI) rose from 70 dollars in March to late 80 dollars in April. In the Middle East, tensions have risen over the possibility of a war between Israel and Iran, fueling a rise in oil prices. Rising international oil prices add to inflationary pressure. In short, inflationary pressures are increasing in the United States right now due to rising international oil prices, as prices are rising and employment is increasing. Considering these factors, there is no justification for the Fed to cut interest rates, and there is no practical use.

Was I in a hurry? The president's verbal intervention in interest rate policy could lead to false signals and confusion in the market.

Still, the market continues to predict a rate cut this year. In January this year, the market expected the Fed to cut interest rates about six times within this year. It also predicted that March would be the first time it would cut interest rates. Powell's remarks in December last year were crucial to this expectation. Powell made dovish remarks at the time, such as "interest rate hikes are no longer a basic policy" and "interest rate cuts were the topic of discussion at the Open Market Committee (FOMC) in December." Considering that prices were high and employment was strong in December last year, Powell's remarks were a little incomprehensible. However, the market took a 2024 rate cut as a foregone conclusion after the remarks and was busy calculating the number of cuts.

However, as economic indicators continue to be released hawkishly in 2024, expectations of a rate cut have decreased toward six->three->two. The timing of the rate cut was also delayed to March->June->July->September. Chairman Powell, who was famous for his straightforward speech, was also embarrassed. There are also growing voices raising the issue of the Fed's communication method. Some point out that the remarks on a rate cut in December last year were hasty.

President Biden's remarks provide an important clue regarding the behavior of the Fed and Chairman Powell. The New York Times reported on the 10th that President Biden has "maintained the expectation that the benchmark interest rate will be cut before the end of the year" since it was announced that prices soared in March. President Biden went on to say that "inflation has decreased dramatically." It is extremely unusual for a U.S. president to comment on the Fed's interest rate policy. This is because the US Fed is advocating independence from politics. In addition, it is right to refrain from commenting on interest rates by politicians because they can create false expectations in the market.

After June, you'll cross the interest rate cut card.It's time for Powell to think about politics.

However, President Biden seems to be in a hurry ahead of this year's election. Somehow, he is expected to make every effort to boost the economy as much as possible before November to create a phase in his favor. If interest rates are lowered before the election and the U.S. economy is better than it is now, there is a higher chance of re-election. For this reason, it is interpreted that he mentioned interest rates, which have been considered "banned," in order to prevent expectations for a rate cut from disappearing in the market due to high prices in March.

If President Biden is very interested in lowering interest rates and Chairman Powell is aware of them, the story so far will be solved to some extent. It will take more than three quarters for interest rates to be lowered and effective. From Powell's point of view, it is effective in the market only when it actually lowers interest rates or mentions interest rate cuts more than nine months before the presidential election. Given the political schedule, it is understandable that Powell mentioned a rate cut late last year. However, since then, as economic indicators have become too "hawkish" than expected, it has continued to be difficult to actually cut interest rates.

Powell turned from dove to hawk on April 16, saying it would likely take longer than previously expected to reach greater confidence that inflation would fall to 2%. "Recent economic indicators certainly do not give us greater certainty," he said at a Washington Forum event on the Canadian economy in Washington, D.C. "Rather, it will take longer than expected to reach that conviction." Powell's remarks about pigeon and falcon are not giving the market confidence.

Then, when will Powell lower interest rates? Interest rates must be lowered at least in the first half of the year to influence the election. June is the Maginot Line. If interest rates are lowered after that, it is obvious that criticism will not only affect the actual economy but also "political finance." If prices continue to rise until June and employment increases, the opportunity to cut interest rates before the election disappears. Then, the timing of the rate cut will be postponed until after the U.S. presidential election. At that time, interest rate policies are expected to be greatly affected by who becomes the president of the United States. Given this, if interest rates are not lowered in the first half of the year, the timing of the rate cut is likely to be after November. The time has come for Powell to consider politics rather than economy.

Will the Bank of Korea's 'Cheonsudap Policy' continue to follow the U.S.

The Bank of Korea's Monetary Policy Committee also left the key interest rate unchanged at 3.5 percent per annum in April. It is an inevitable choice at a time when U.S. prices are rising and the timing of interest rate cuts is delayed. In the wake of April's parliamentary elections, South Korea has somewhat escaped from political influence. It is time to focus on changes in the economic environment and implement interest rate policies. Korea's economic environment is not easy. Consumer prices continued to rise to 3.1 percent in March. Considering that the government artificially blocked inflation factors ahead of the election, the actual inflation rate is estimated to have been higher. As international oil prices continue to rise, inflation is expected to rise in the future.

The outlook for employment is also not smooth. According to the National Statistical Office, the number of employed people increased to 173,000 in March, the lowest increase since February 2021. On top of that, the exchange rate has been high day after day, crossing the 1,360 won mark. Looking at employment and the economy, interest rates should be lowered, but it is a dilemma that is difficult to raise rates considering exchange rates and prices. The opposition party's landslide victory in the April general elections is expected to create an unfriendly environment politically for the central bank. For one reason or another, it is difficult to expect the Bank of Korea's preemptive monetary policy. The 'Cheonsudap Policy' looking at the United States is expected to continue for the time being.

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