Kim Hak-kyun, head of the research center at Shinyoung Securities, stated that the recent rise in interest rates is not primarily due to the Federal Reserve's monetary policy, but rather a reaction to market interest rates that have increased first, with the Fed subsequently endorsing this trend. He noted that factors such as the U.S. fiscal deficit and rising oil prices due to the Middle East conflict are influencing long-term interest rates, and he believes that once the war ends, both oil prices and long-term rates may stabilize.
During a press conference held on September 22 at the Korea Exchange in Yeouido, Seoul, Kim remarked, "In the short term, this is not the Fed's time; it is the White House's time."
He assessed that the rise in stock prices despite the Fed's interest rate hikes indicates that the dynamics affecting interest rates are determined by the market rather than the central bank. Typically, when a central bank sets benchmark interest rates, market rates reflect this; however, he explained that this order has recently reversed. Long-term interest rates, which are typically higher than benchmark rates, reflect market judgments on future growth rates, inflation expectations, government fiscal conditions, treasury supply, and risk premiums, making it difficult to explain recent interest rate trends solely through the Fed's monetary policy.
Kim identified the U.S. fiscal situation as a key factor behind the recent rise in long-term interest rates. He explained that ongoing fiscal deficits, coupled with concerns over government treasury issuance and increased fiscal spending, could lead to higher risk premiums demanded by the market. He suggested that if fiscal expansion continues, a structure may emerge where long-term interest rates rise independently of the central bank's monetary policy.
The Middle East conflict is also seen as a major variable influencing interest rates in the short term. He analyzed that if the war prolongs, rising oil prices could increase inflationary pressures while geopolitical risks continue, leading to upward pressure on long-term interest rates.
Conversely, he believes that if the war ends, the interest rate environment could change. Kim projected, "If the war ends, oil prices may decrease, and long-term interest rates could also fall." He explained that a reduction in oil prices and a decrease in geopolitical risks would lower concerns about inflation and risk premiums, potentially leading to lower long-term interest rates.
However, he pointed out that the long-term risk of rising interest rates due to fiscal expansion remains, independent of the Middle East conflict. Prolonged high interest rates could increase the interest burden not only on the government but also on businesses and households, posing a challenge to the already debt-laden global economy. He emphasized that if long-term interest rates remain elevated, it could impact both financial markets and the real economy.
In the domestic stock market, changes in the flow of individual investors' funds are acting as a factor altering the supply-demand structure. According to Kim, individual funds saw a net outflow of 13.5466 trillion won in August, followed by an outflow of approximately 9.83 trillion won by September 18. Unlike in previous bull markets, where individual investors' inflows were a major source of market supply, recent outflows are changing the supply structure.
As a result, he anticipates that the importance of foreign investment will increase. In a situation where individual investors continue to sell, whether foreign investors buy will be a key variable determining market supply and demand.
* This article has been translated by AI.
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