The Impact of US Economic Indicators on the Korean Economy: Analysis of Interest Rates, CPI, and Unemployment Claims

Why is the US Economy Important? The Compass of the Global Economy, Key US Indicators

The global economy, including ours, is closely linked to the US economy.

The flow of the US economy has a significant impact on the global financial market and economic policies of each country, so it is essential to closely monitor key US economic indicators.

In particular, the US base interest rate, consumer price index (CPI), and unemployment claim status are key indicators that directly affect the Korean economy.

In this post, we will analyze in depth what each of these three indicators means and how they affect the Korean economy to help you increase your understanding of the economy.

1. US Base Interest Rate: Impact on Korean Interest Rates and Exchange Rates

- What is the Base Interest Rate?

The base interest rate is the interest rate applied when the central bank lends money to commercial banks, and it serves as the standard for all interest rates. In other words, when the base rate rises, the lending rates of commercial banks also tend to rise, and when it falls, the lending rates also tend to fall.

- Recent trends in base rates in Korea and the US

On January 15, the Bank of Korea's Monetary Policy Committee (MPC) froze the base rate at 3.00%.

At the time, there were voices predicting a rate cut due to concerns over a domestic economic slowdown, but it is analyzed that the freeze was chosen to defend the high won/dollar exchange rate (1,450-1,470 won). This is because a rate cut can further increase the pressure on the exchange rate.

In the US, the base rate was 4.5% in December last year, but it is possible that it will be slightly lowered to 4.25% at the January FOMC meeting (scheduled for Wednesday, January 29) or frozen like in Korea.

- Impact of the interest rate gap on the Korean economy

Currently, the **interest rate gap between Korea and the US is approximately 2.5%**. This large interest rate gap raises the following concerns:

- Financial asset outflow overseas: 

Domestic investment funds may flow out to overseas countries such as the US in search of higher interest rates.

- Impact on stock prices: 

Overseas capital outflow can act as downward pressure on the domestic stock market.

The government is using various economic stimulus measures such as the expansion of Onnuri gift certificates, but it is unlikely that the economy will recover in the short term due to external uncertainties such as concerns about high inflation and former President Trump's inauguration remarks scheduled for January 20.

2. US Consumer Price Index (CPI): A key indicator of inflation and interest rate policy

- What is CPI and why is it important?

**Consumer Price Index (CPI)** is an indicator that measures the price changes of goods and services purchased by consumers.

It is one of the most important ways to determine inflation (price increase rate) and indicates the purchasing power of consumers and the overall health of the economy.

- If the CPI figure is higher than expected: 

It means the value of the US dollar has risen and a positive economic outlook. This can be interpreted as a signal of high inflation pressure.

- If the CPI figure is lower than expected: 

It means the value of the US dollar is falling and the economic outlook is negative. This may indicate a possible economic slowdown or deflation (falling prices).

- Recent CPI change rate and Fed's interest rate policy

The actual CPI change rate in the US recently (as of January 15, 2025) was 2.9%, which is the same as the forecast of 2.9%. This is a slight increase from the previous month's 2.7%.

- High CPI increase rate: 

The Federal Reserve (the US central bank) is more likely to consider raising interest rates. This is a measure to stabilize prices.

- Low CPI increase rate or below expectations: 

The Fed is more likely to consider cutting interest rates. This can be interpreted as a measure to stimulate the economy.

The US CPI trend plays a decisive role in determining the direction of the Fed's monetary policy, which in turn affects financial markets around the world, including Korea.

3. US unemployment claims: A barometer of the job market and economic conditions

- What do unemployment claims mean?

The US unemployment claims are released weekly and are an important indicator of the health of the US labor market and the overall direction of the economy.

We can predict changes in the job market by looking at whether the number of new unemployment claims is increasing or decreasing.

- The relationship between unemployment claims and the Fed's interest rate policy

A sustained increase in unemployment claims: This indicates concerns about a worsening job market and slowing economic growth.

The Fed is more likely to consider cutting interest rates to stimulate the economy.

- Low unemployment claims: 

This can be interpreted as a signal that the economy is growing and that the labor market may be overheating.

The Fed is more likely to consider raising interest rates to curb inflation.

- Latest unemployment benefits claims (as of January 18, 2025)

According to the U.S. Department of Labor, the number of new unemployment benefits claims for the week of January 11 increased by 14,000 to 217,000, slightly exceeding the expected 210,000.

In addition, the number of continuous unemployment benefits claims for the week of January 4 decreased by 18,000 to 1,859,000.

When considering these new and continuous unemployment benefits claims, the current U.S. job market is analyzed to be solid.

This can be interpreted as a positive signal for the overall U.S. economy, but inflationary pressures due to the overheating of the labor market should also be monitored.

Conclusion: 

U.S. economic indicators, the key to reading the future of the Korean economy

So far, we have looked at what the U.S. base rate, consumer price index (CPI), and unemployment benefits claims each mean and how they affect the Korean economy.

These three indicators are important individually, but they are organically connected to each other to determine the direction of the US Federal Reserve's (Fed) monetary policy, which in turn creates major trends in the global financial market.

In the current volatile economic situation, consistently monitoring and understanding these US economic indicators is essential to predicting the future of the Korean economy and making wise investment decisions.

We will continue to closely analyze important economic indicators whenever they are announced and provide you with useful information.

Good articles to read together:

[What is inflation? Why the value of money is falling and countermeasures]

[Exchange rate fluctuations, what is the effect on my assets?]

[Rate hike/cut, what is my loan interest?]

#US interest rates #Korean economy #CPI #Consumer price index #Unemployment benefits #Economic indicators #Inflation #Exchange rate #Stocks #Investment #Fed #Financial market