Just as November is hot this year like last year, the

And what's unique about this year is the weather in November. I used to wear thin coats from around this time in November. But last year, around November 20, the weather exceeded 20 degrees Celsius. It's similar this year. But I feel like this year is even hotter, because I wear short sleeves during the day. Is it really the effect of climate change? I think it's a little bit scary.

Just as November is hot this year like last year, the market movement in November similar to last year seems to show that hope. Last year, the exchange rate, which had been over 1,440 won due to growing expectations for a pivot, fell sharply from mid-November. This year, the exchange rate, which was over 1,350 won, fell sharply, once below 1,310 won. And interest rates are similar. The 10-year U.S. Treasury bond rate has fallen sharply since it peaked at 4.3% in late October to November last year. In particular, the SVB crisis in March this year pushed down interest rates even stronger, pushing them down to 3.3%. And the stock market reacted enthusiastically. The Nasdaq Composite Index rose sharply by hitting the low of 10,500 points in October last year, providing a turning point that almost reached the all-time high level recorded on November 19, 2021. That was in November last year.

The catalyst for November last year was the November FOMC. Powell made it official that we were going to start adjusting the pace of the rate hike at the time, creating market expectations that the rate hike was over. The Fed's benchmark interest rate forecast, which was busy continuing to be revised upward, was in June of the following year. (We expected next year at the end of last year.. So it's going to be this year..) or September, we're going to start cutting the benchmark interest rate by 200 basis points by the end of 2023, and we're going to have to lower the benchmark rate to around 3%. It's a powerful pivot package. And the market is going crazy looking at that. To cut interest rates by 200 basis points was a big opportunity that we could never miss. So we're going to jump into the stock market and we're going to create a surge in stock prices.

And the American people, who gained confidence because of this rebound in the stock market, and because of soaring housing prices, started to continue to consume. It's a similar pattern now. And the title of a recent newspaper article says that Americans are spending as if there is no tomorrow. The labor market is hot. And asset prices keep going up. And in fact, wage income from labor and capital income from rising asset prices continue to continue to be income. But aren't they both always income? If the Fed has given us the belief that asset prices will continue for more than 10 years, it should be based on this that you should spend generously. And the recession in the United States, which we were told to come from growing consumer confidence, has actually disappeared. FYI: Last year, GDP growth was negative for two consecutive quarters. The possibility of a recession was really high. But to address those concerns, it created a phenomenal growth rate of 4.9% in the third quarter of this year.

I think there was a lot of fear among the Fed members, including Powell, who are looking at soaring interest rates again this year. First of all, the Treasury Department has lowered the increase in government bond issuance (increased less than market concerns) and focused on the issuance of short-term government bonds rather than the issuance of long-term government bonds, which are on the rise right now. For your information, short-term interest rates are affected by the Fed, and long-term government bonds are affected by the financial market environment and the future prospects for the real economy. Even if short-term interest rates jump by increasing short-term government bond issuance, the Fed can exert some influence on short-term interest rates. So, short-term interest rates, as well as long-term interest rates, have fallen a lot recently. That's what told us that the Treasury Department is very concerned about the rise in long-term government bond rates.

And at the November FOMC, Powell noted that the tightening of financial market conditions--the current interest rates are at a constrained level that's above neutral. And when it was announced at the FOMC in September, he explained that the dot plot that scared the market was nothing. But he said that if the labor market remains hot and continues to grow ... that could prompt further interest rate hikes. And that's where the U.S. Employment Report popped up. The weakened U.S. labor market, which is quite different from the last month. The Treasury, the Fed, and the weakening of the labor market hit the combo for the third day in a row, crushing U.S. Treasury yields. The dollar fell with a huge drop in interest rates. And the U.S. stock market has risen sharply, once again boosting the mood of the pivot festival.

But the only thing we have to be wary of is this: remember how markets did last year when they kept the pivot expectations alive. It was good to blow recession fears away from the pivot expectations…but as the financial markets heated up and U.S. consumption heated up, we picked up the bottom of the U.S. economy in a hard-carry manner. And we were a little embarrassed by the way inflation looked up again, and in July this year we started raising interest rates again, leading to the highest benchmark interest rate since 2001. But now, the U.S. growth is not as low as it was in the last year. Of course, the fourth-quarter forecast was revised down, but it's better than last year's reverse. And this is a market that we learned a lot from last year's pivot expectations, clearly, and clearly seeing how they affect the asset market. Just a little bit more. Just a little bit more. Just a little bit more. This is a blow to the market that we were enduring…



If I were to tell you what I had been looking forward to... without having to talk directly about the pivot, what would the market do if it had that similar nuance? Yes, of course, it would pay off with a strong uptick. So once again, asset prices are pushed up, won't the slowing growth rate be restored? And won't the consumption, which was expected to slow down, strengthen again? And the rise in asset prices will keep growth strong, and the stronger consumption will drive inflation, which we thought we were close to catching.

In fact, if you look at the Fed's interest rate futures, there's no further increase since then. In fact, the rate hike is over. The rate cut should start. Most are looking at cuts in May next year. And since we have to deal with the slowdown in the U.S. economy by the end of next year, we expect to make four more cuts and bring it down to 4.25 to 4.5%. In the last FOMC statement, Powell stressed that the dot plot could change at any time. What the market has been afraid of so far is that there was a fear that the Fed would push ahead with the dot plot. If the FOMC lowered the dot plot together in December, the market would go crazy thinking, "Finally, the Fed has kneeled on the market."

And with asset prices rallying into next year, if we start cutting the benchmark interest rate in May next year... the Fed that really gave in... it's going to cut interest rates by an additional 100 basis points in the future... and that could be the first Fed to cut rates by more than 100 basis points, even though asset prices continue to rise above all-time highs and overheat.

Yes. Actually, the concern is that the Fed is moving too fast when inflation has not been brought under control. Let's say that the Fed's commitment to austerity is reflected in the long-term interest rate. If you let go of the commitment to austerity in a happy way by looking at the long-term interest rate that has gone up, long-term interest rates will come down again. The teacher, who was only laughing at the children, showed a strong attitude and eventually made them follow. Because of their strong control, the children are acting on their own. If the teacher, who became happy watching it, smiled and released it again?? Won't the children be divided again? That warning message is being sent by Dudley, the former governor of the New York Fed.

Shortly after the FOMC, Dudley wrote in Bloomberg about why the Fed's direction could be a big mistake. Here are four things to say. One is still a strong labor market. And of course, even though non-agricultural employment indicators have slowed, there are still 1.5 job openings per worker. The second is strong growth. It's going to slow down in the fourth quarter, but it's already shown some strong potential in the third quarter. If you throw a clumsy pivot here and you throw money at it, it could add fuel to that growth again.

Number three: financial markets are reacting in real time to the Fed's every move, and they're waiting in the direction that the Fed is likely to move in the future, rather than in the current situation. In fact, the U.S. Financial Environment Index peaked in December 2022, indicating that it was the tightest of times. This year, reflecting Pivot expectations, the financial environment index has turned quite relaxed. Even after December of last year, there have been several additional interest rate hikes, the market doesn't care.

Finally, we're looking at what's causing long-term interest rates to rise. This is a discussion of term premiums. It's not just market participants wanting higher interest rates, it's going to go up naturally. If it's going to go up in the future, or if it's going to reflect expectations that future inflation is going to be stronger, or if it's going to go up in the Fed pivot, if it's going to cut interest rates with high inflation expectations and high growth, then it's going to have the side effects of stronger inflation.

For your information, former New York Fed President Dudley emphasized that this inflation is not temporary in 2021, and he said that the Fed's benchmark interest rate should rise above 4% in early 2022. And this year, in June, it appeared