▲ AI PRISM* Personalized Economic Briefing
* Editor's note: AI PRISM (Personalized Report & Insight Summarizing Media) is an artificial intelligence-based personalized news recommendation and summary service developed with support from the Korea Press Foundation. It selects and provides six news items tailored to each reader type.
[Key Issue Briefing]
■ Fed rate increase: The U.S. Federal Reserve abruptly raised its benchmark interest rate for the first time in three years and two months, amid rising international oil prices and inflation pressure. Through its dot plot, the Fed left open the possibility of one more increase this year. With the Bank of Japan also expected to raise rates following the Bank of Korea's increase last month, the global tightening clock appears to be accelerating.
■ Long-term rate diagnosis: Federal Reserve Chair Kevin Warsh pointed to three factors behind the recent rise in long-term U.S. Treasury yields: economic strength that exceeded expectations, competition among hyperscalers for funding, and conflicts around the world. As the Fed confirmed its hawkish stance, the 10-year Treasury yield turned lower after eight consecutive trading sessions of gains. But the average yield on global government bonds has climbed to a 19-year high on oil price increases driven by Middle East tensions.
■ Expanded sanctions on Russia: A bill that would allow tariffs of up to 100% on exports to the United States from countries that import Russian oil and natural gas passed the U.S. House, turning the edge of sanctions toward energy trade. If the measure, aimed at Russia's war funding, takes effect, China, India and Turkey — which together account for more than half of Russia's energy exports — would fall directly within the strike zone.
[News of Interest to Global Investors]
1. Fed Raises Rates for First Time in Three Years, Signaling Tougher Tightening Ahead
- Key summary: At its regular Federal Open Market Committee meeting on the 16th, the U.S. Federal Reserve raised the benchmark rate by 0.25 percentage point in a unanimous 12-0 vote, lifting the U.S. benchmark rate to an annual 3.75% to 4.00% for the first time in three years and two months since July 2023. That puts the upper end 1.00 percentage point above Korea's 3.00%. In the dot plot within its Summary of Economic Projections, the Fed put the median rate at the end of this year at 4.125%, signaling that one more increase is possible at the October and December meetings. On the hawkish signal, the 10-year Treasury yield spiked to 5.027% immediately after the meeting before falling back into the 4% range. The Dow Jones Industrial Average fell 1.21% to a three-month low, and the won closed daytime trading at 1,382.2 won against the dollar, up 13.6 won.
2. Warsh Says Rising Yields Signal a Strong Economy, Brushing Aside Criticism of the Fed
- Key summary: Federal Reserve Chair Kevin Warsh said the recent rise in long-term U.S. Treasury yields stems from the solid performance of the U.S. economy. At a news conference, he cited competition to secure funding amid a surge in capital spending as the second factor, explaining that hyperscalers are raising money in the market and that competition over capital is in fact taking place. As a third factor he pointed to geopolitical variables, adding that conditions in conflict zones affect not only spot prices for energy and grain but also crack spreads, or refining margins, and retail selling prices. Meanwhile, with the Fed's commitment to containing prices confirmed, the bond market found some stability. The 10-year Treasury yield fell 3 basis points, or 0.03 percentage point, to 4.99% on the 17th, ending eight straight sessions of gains. Market attention is shifting to the Bank of Japan, which is expected to raise its policy rate to 1.25% from 1%.
- Key summary: A bill that would allow tariffs of up to 100% on exports to the United States from countries that import Russian oil and natural gas passed the U.S. House on the 16th by a vote of 262 to 159. A White House official said President Donald Trump would sign the bill soon to complete the legislative process. The sanctions focus on cutting off funding for Russia's war, which has continued for more than four years since the invasion of Ukraine. The measure directly targets the shadow fleet of tankers that have evaded Western sanctions and also extends sanctions on Iran through 2031. If the bill takes effect, China and India and Turkey, which together account for more than 50% of Russia's energy exports, would be hit, and some importers including Japan, France and Hungary could also suffer damage, observers say.
[Reference News for Global Investors]
4. Huawei Moves Up AI Chip Launch, Saying Its Goal Is to Become Nvidia
- Key summary: Chinese telecommunications equipment maker Huawei has moved up the launch of its next-generation artificial intelligence chip to 2027, earlier than planned. Wang Tao, Huawei's rotating chairman, announced at the 2026 Huawei Connect conference in Shanghai that the Ascend 960 chip had been readied ahead of schedule and delivers twice the performance of existing products. The 960DT for training will be released in the first quarter of next year and the 960PR for inference in the third quarter. Huawei has also developed 11 types of semiconductors based on its UnifiedBus technology, which links multiple AI chips so they operate as a single large computing system. Its Atlas SuperPoD AI computing supernode system has already been deployed in more than 1,000 sets, with about 370 customer companies, the company said. Earlier, Guo Ping, chairman of Huawei's supervisory board, declared that Huawei's goal is to become Nvidia, suggesting a plan to have a wide range of large language models run on Huawei's platform in the way they do on Nvidia's CUDA platform.
5. Stocks Doubled When Rates Rose During the Dot-Com Bubble
- Key summary: Past periods of rate increases did not immediately lead to sharp stock declines. An analysis by Seoul Economic Daily of four major rate-hike cycles over the 30 years since 1996 found that the Nasdaq Composite rose in every case from the first increase to the last, an outcome attributed to the solid real economy and firm corporate earnings that allow central banks to raise rates in the first place. During the dot-com bubble, from June 1999 to May 2000, the benchmark rate rose 1.75 percentage points while the Nasdaq gained 26.6%, and in March 2000 the index hit 5,048.62, up 88.0% from just before the first increase. Instead, bubble collapses and sharp stock declines began in earnest when rates were being cut. During the dot-com bubble the Nasdaq fell 77.9% over two years and seven months from its peak, and during the financial crisis it dropped 55.6% from the first cut in September 2007 to its low in March 2009.
6. Korean Investors Hold Leveraged ETFs Too Long and Should Set Loss Limits and Exit Points
- Key summary: Matt Markiewicz, head of product and capital markets at U.S. leveraged exchange-traded fund manager TRADR ETFs, said in an interview with Seoul Economic Daily that Korean investors tend to hold leveraged ETFs longer than U.S. investors. Because leveraged ETFs track daily returns and are not designed to be held for the long term, investors should decide in advance on entry and exit prices and the size of loss they can tolerate, he stressed. TRADR ETFs had net assets of about $5 billion (about 6.88 trillion won) as of the 16th, of which holdings by Korean investors accounted for $438.3 million (about 603.1 billion won), or roughly 9% of the total. The firm recently launched SKHA and SKHN, which use SK hynix (000660) American depositary receipts as their underlying asset, and is preparing a product aimed at the initial public offering of unlisted AI company Anthropic. On the Korean stock market, he said it has delivered the best performance in Asia this year but remains somewhat undervalued relative to the earnings growth potential of its companies. He also said the next quarter's results for Samsung Electronics and SK hynix could exceed market expectations, given favorable supply-demand conditions and demand for memory chips.
▶Read the article: Fed Raises Rates for First Time in Three Years, Signaling Tougher Tightening Ahead
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