No Rate Cuts Until Inflation Is Under Control

Federal Reserve Chair Jerome Powell's remarks at the Jackson Hole meeting were described as somewhat disappointing. Although Powell stated he would not provide forward guidance, he ultimately showed a contradictory stance by hinting at the possibility of interest rate hikes.

Critics pointed out that this communication style gave the impression of political expediency rather than the gravitas expected of a Fed Chair.

The Fed's inflation target is 2%, but although current inflation indicators show a downward trend, fundamental changes are minimal. Chair Powell emphasized that price stability is the Fed's responsibility, and if there is no confidence that inflation is reaching the target, further action will be necessary.

He stated that he needs to be confident that underlying inflation is moving toward the target at a clear and sufficient pace, and if not, the Fed has work to do.

Powell's remarks were negative, indicating a hawkish stance on interest rates, but the market did not take them at face value. This appears to be influenced by the subtle relationship between President Trump's pressure for rate cuts and the Fed's independence.

Despite the strong remarks, the actual interest rate market reaction was limited, with the market assessing that Powell's comments were hawkish but would not lead to strong action due to the relationship with the Trump administration.

Immediately after the Fed Chair's speech, the 2-year short-term Treasury yield surged by 0.11 percentage points (11 basis points). In contrast, the 10-year Treasury yield rose by 4 basis points, and the 30-year by a modest 1 basis point.

Market participants interpreted this limited rise in long-term Treasury yields as a sign to alleviate excessive concerns about them.

The Governor of the Bank of Korea hinted at the possibility of an interest rate hike at the September meeting. He stated that the inflation rate has exceeded the target for 65 months, creating its own momentum.

There is an understanding that Korea needs to respond preemptively in a situation where the US is raising interest rates. Analysis suggests that additional measures are needed given the prolonged period of inflation exceeding the target.

The Bank of Korea revised its economic growth forecast for Korea upward to 3.3%. However, some assess this figure as somewhat conservative.

According to Bloomberg data, 14 out of 42 surveyed institutions forecast a higher growth rate of 3.5% or more. The proportion of institutions expecting growth of 3% or more significantly increased compared to June.

The Bank of Korea raised its growth forecast for this year to 3.3%, a 1.5 percentage point increase from its 1.8% projection last November. This is a process of revising the annual forecast, different from a higher second-half forecast compared to the first half.

Some criticize the delayed revision of forecasts by overseas institutions as a somewhat naive response.

TrendForce forecasts that Samsung Electro-Mechanics will raise MLCC (Multi-Layer Ceramic Capacitor) prices for OEM and ODM customers in Q4. General-purpose products are planned for a 25-30% increase, while high-end products will see a 10-20% increase.

This signifies an expansion of negotiation power not only with existing distribution channels but also with large OEM/ODM customers.

Samsung Electro-Mechanics is adopting a production strategy that expands the proportion of high-profit, high-spec products while reducing the supply of general-purpose products. High-spec products can command higher prices, contributing to improved profitability.

This strategy mirrors the trend of production efficiency optimization in the DRAM market.

Export growth continues for AI semiconductor substrate value chain companies, including Isu Petasys (substrates), Doosan (laminates), and Lotte Energy Materials (copper foil). AI substrate-related export value increased by 41% year-on-year.

In particular, volumes destined for NVIDIA are increasing by 50% year-on-year, and July's export value surged by 53.7% compared to the previous year.

LG Chem recently secured three global clients in its CCL (Copper Clad Laminate) business, strengthening its position in this field.

Chinese memory maker CXMT (ChangXin Memory) saw its first-half revenue surge by 873% year-on-year. Based on this growth, CXMT has risen to become the top market capitalization company in China.

CXMT's first-half revenue reached 30 trillion won. This shows a significant gap when compared to Samsung Electronics' annual revenue of 300 trillion won.

For reference, Alibaba's market capitalization is 395 trillion won.

It is necessary to view economic growth and the public's felt economy separately. There is a widespread perception that the public's economic situation has not significantly improved over the past 30 years.

Confusing growth shown in indicators with felt economic conditions can lead to errors in investment decision-making.

It is important to be cautious about the idea that poor public economic conditions automatically lead to interest rate cuts. While it's true that rates should be lowered when the economy is bad, expecting rate cuts and investing solely because the felt economy is poor can be risky.

For investment, it is necessary to rationally judge the trend of economic indicators.

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