US Fed Interest Rate Hike 'Possible', Lee Jae-myung Focuses on 'Rate Cut', Credit Investment 'Strong'

 

US Fed Interest Rate Hike 'Possible', Lee Jae-myung Focuses on 'Rate Cut', Credit Investment 'Strong'

 

The US Federal Reserve (Fed) has indicated a rate hike is 'likely' and a rate cut is 'unlikely'. Meanwhile, Korean securities firms and media outlets have been reporting on 'rate cuts' and have been presenting strategies to support the stock market, revealing a gap.

The Fed's January minutes revealed concerns among officials that a rate cut too early or too deep could weaken control over inflation.

According to the minutes released on the 18th, most officials expressed concern that progress in curbing inflation "could be slower and more uneven than generally expected."

The minutes also stated that several policymakers requested the Fed "convey the possibility that an upward adjustment in the target range for the federal funds rate could be appropriate if inflation exceeds the target level," according to a New York Times report on the same day under the heading "The Possibility of a Rate Hike."

The minutes of the meeting that decided to hold rates steady also described the risk that inflation would continue to exceed the Fed's 2% target as "significant," and several policymakers noted that there was still a path for rate cuts this year if inflation declined as expected. However, a larger group supported holding rates steady until there were clear signs that disinflationary progress had firmly returned to normal, and the vote was 10-2 to keep rates at 3.75%, up from 3.5% previously.

Two Fed officials, Christopher J. Waller and Stephen I. Miran, dissented, arguing that "the labor market remains fragile without additional central bank support."

The New York Times said, “The decision to hold interest rates temporarily follows three consecutive contentious meetings in which officials were divided on how to respond to a slowing labor market and rising inflation pressures from President Trump’s tariffs.”

It added, “Estimates of the personal consumption expenditures price index (PPI), a measure the Fed watches more closely, suggest a reacceleration in coming months, which could lower expectations for the Fed’s next cut,” adding that the January consumer price index (CPI) report at the time of the rate freeze had little impact.

Reuters reported on the 19th that the Fed minutes indicate that efforts by the Trump administration to improve housing affordability have so far failed to yield significant results. The minutes noted that the administration's plan to purchase mortgage hegemony has resulted in 'significant declines in yields on mortgage-backed securities relative to Treasury yields of similar maturity,' and that the administration's plan to inject $200 billion to lower mortgage rates and stimulate the housing market has failed.

 

Regarding the minutes, a New York Fed official told Reuters, "We observed that current mortgage rates are significantly higher than the weighted average rate on outstanding loans, making it unlikely that this would lead to a substantial increase in mortgage refinancing."

 

The New York Fed official's comments echoed the views of private sector analysts, who noted that while the Trump administration's $200 billion plan announced earlier this year had some impact, it did not significantly alter the dynamics of the already chaotic housing market." 

Fed officials stated at the meeting that "the primary challenge in the housing market is not the availability of financing, but the supply of housing. Until supply improves, the sector of the economy that currently accounts for the majority of household borrowing will continue to be challenged."

 

The Trump administration's strategy of expanding new housing supply by lowering mortgage rates, a strategy aimed at reducing the risk of falling high-priced housing prices, was to expand the money supply and push for $200 billion in "supply." 

However, the Fed stated in its January meeting minutes that "these have become meaningless in the bond market," and that "housing is a priority for new housing supply."

Reuters reported, "The primary driver of the mortgage rate cut was the Fed's reduction in short-term credit costs, which led the Fed to lower its target rate by 0.25 percentage points last year, to a range of 3.5% to 3.75%." The report added, "The Fed is currently holding off on finding evidence that inflation is declining, and the minutes note that a New York Fed official noted that recent changes to the Fed's rolling repo operation, which helps the Fed manage its interest rate target, have made it a more attractive lending tool for financial institutions."

 

The minutes also noted that the Fed's massive Treasury purchases, intended to bolster reserves ahead of the mid-April tax deadline, are proceeding as planned.

 

"The reserve level was expected to fluctuate around $3 trillion heading into this period," Reuters explained, adding, "The Fed is adding liquidity for technical reasons and to ensure that money markets have sufficient cash to allow short-term interest rates to trade at the central bank's desired level." 

The report differed from a rate cut. When announcing the rate freeze on March 27th, Federal Reserve Chairman Powell told reporters that the Fed was "not trying to determine when or whether the next rate cut will occur," referring to the central bank's March 17th-18th meeting. When asked about the possibility of a rate hike, he said, "We're in a good position," adding that the Fed will make decisions at each meeting, and that a rate hike is "nobody's baseline scenario."

 

Powell, who has been the subject of a criminal investigation in response to President Trump's pressure to cut interest rates, will serve two more terms as chairman, ending his term in May. He could remain a board member until 2028.

President Trump announced last month that former Fed Governor Kevin M. Warsh would replace Powell. If confirmed by the Senate, Warsh's first meeting as chairman is scheduled for June.

The New York Times reported, “Financial markets are tracking interest rate cut expectations and expect the Warsh administration to initiate a cut, but the timing has shifted as the labor market has recently shown signs of stabilizing.” They added, “Rate decisions are made by a 12-member policymaking committee comprised of the entire board of governors, the president of the Federal Reserve Bank of New York, and four presidents who rotate among the remaining 11 regional banks.”

The Times continued, “Officials have signaled a high bar for further cuts as long as the labor market holds up.” “Policymakers and economists on Wall Street are projecting relatively stable growth in 2026, raising concerns that inflation will remain muted even as many expect tariff-related price pressures to ease at some point this year.”

A recent study by New York Federal Reserve economists found that 90% of the economic burden of the president’s tariffs will fall on American businesses and consumers by November 2025. The New York Times reported, "The study drew strong criticism from President Trump's top economic adviser, Kevin A. Hassett, who on the 17th called it 'the worst paper I've ever seen in the history of the Federal Reserve' and urged the authors to be 'disciplined.'"

Hassett's aggressive criticism focused on interest rate cuts and is the latest example of the Trump administration's push for significantly lower rates than the Fed has been willing to offer.

Fed officials have warned that cutting rates too early or too deeply could weaken the Fed's ability to control inflation.

On May 25, 2021, while serving as governor of Gyeonggi Province, President Lee Jae-myung lowered the legal maximum interest rate to 11.3-15% and called for "the introduction of basic financing, which would provide all citizens with long-term loans of up to 10 million won at an annual rate of 2%." He later pledged to "achieve a KOSPI index of 5,000" during his presidential campaign. President Lee's $650 billion investment agreement with the US, which included a 15% tariff reduction, was vulnerable to exchange rate vulnerabilities.

President Trump's decision to reinstate tariffs for non-compliance has also led to renegotiation, resurfacing the threat of tariff inflation.

 

Credit ratings agency Fitch Ratings considered rising household debt, a concern in Korea's ratings, to be a constraint due to interest rates. It stated on March 31st, "While still high at 90% of GDP in the third quarter of 2025, it is on a downward trend." It added, "Concerns about a renewed rise in household debt are limiting the Bank of Korea's ability to cut interest rates further."

 

Fitch Ratings stated, "Structural issues stemming from an aging population and rising government debt could weaken credit ratings in the medium to long term." It also forecasted the Lee Jae-myung administration's fiscal policy to be "looser fiscal settings" and a consolidated fiscal deficit of 2.0% of GDP this year.

With securities firms' credit lending rates dropping to around 3%, the Lee Jae-myung administration, which is driving "credit investment" in the stock market, has adopted the "KOSPI 5000" strategy to fuel public expectations of "additional U.S. interest rate cuts." Since last year, securities firms have consistently published reports predicting a "stock market rally" based on the expectation of "additional U.S. interest rate cuts in 2026."

 

With the KOSPI hitting record highs, direct financing to companies has become increasingly difficult, in stark contrast to securities firms' 3% annual lending rates. This appears to have resulted in rising corporate loan and bond interest rates.

 

This has created a vicious cycle where funds in the market are diverted to the stock market, and securities firms are reinvesting them in the market through interest-free loans. Net corporate bond issuance in January plummeted to 426.1 billion won, the lowest level since 2017. Corporate bond issuance plummeted from 5.4991 trillion won in January 2024 and 1.8252 trillion won in January 2025 to a quarter of its original size after the president himself announced a "strong economic recovery."

 

January, a peak month for corporate loans, saw a 2.6276 trillion won increase from the previous month to 847.353 trillion won at the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—a sharp decline from the 5.1003 trillion won increase in January last year, a sharp decline of half.

 

President Lee stated at the January Cabinet meeting, "There may be an opportunity to prepare a supplementary budget in the future," and Citibank responded with a report stating, "The Korean government is likely to unveil a 10 trillion won fiscal stimulus package as early as March."

Kiwoom Securities' report on the 19th stated, "In the North American market, growth will expand if there are price increases or further interest rate cuts," and raised its target stock price.

The company is aggressively marketing its margin loan interest rates, lowering them to the 3% range. Hana Securities announced a surprise event offering a 3.9% annual margin loan interest rate until March 27th.

Hanwha Investment & Securities is targeting so-called "stock loan swap" demand by offering a 3.9% annual interest rate for 90 days to customers transferring loans from other companies.

Woori Investment & Securities has extended its 3.9% annual preferential interest rate event until the end of the year, embarking on a customer retention strategy.

Meritz Securities lowered its interest rate for 7-day periods from 5.9% to 4.9%, targeting investors who prefer short-term trading.

During the stock market boom, securities firms increased their market share by expanding customer credit investments and profited from selling stocks on outstanding loans. 

This led to additional interest rate cuts for borrowers. This led to the establishment of a systemic ideology of "confidence in future stock price increases following interest rate cuts." Credit balances, which stood at around 27 trillion won at the end of last year, surpassed 29 trillion won within a year.

See <US Non-Stockholders' Consumer Sentiment at Worst, 29% 'Economically Positive'; Polarization Intensifies, February 14, 2026>

<US Investments Shift from AI Stocks to Traditional Stocks, Lee Jae-myung's Personal Loan Predation Risks 'Stock Market Empire', February 8, 2026>

<Lee Jae-myung's Pragmatic Empire Cracks as AI-Based Doctor Replacement Prejudice Loses Balance, February 10, 2026>

<K Economy: Scraping the Bottom to Push Up the Top, Stock-Driven High-Income Wealth Increase, December 2, 2025>

<K-Shaped Polarization in the US-Korea Economy Leads to Decline in Consumer Confidence; Stock Rise Leads to High-Price Housing Prices, October 29, 2025>

<Lee Jae-myung Promises Restoration of Park Chung-hee-Style Command Economy, 'KOSPI Surges to 5,000,' January 3, 2022>

<Lee Jae-myung "Stock Market Stimulus, Monetary Expansion, and Recession Supply Expansion" - Hardline Conservatives, May 14, 2025>