Anchor: The U.S. Federal Reserve announced its decision to raise key interest rates by a quarter of a percentage point on Wednesday, marking the second time the Fed has raised rates this year after the first hike in March. The new rate of one to one and a quarter percent is on par with the level of South Korea's.
Kim Bum-soo has more.

Report:

[Sound bite: U.S. Federal Reserve Chair Janet Yellen]
"Today, the Federal Open Market Committee decided to raise the target range for the federal funds rate by a quarter of a percentage point, bringing it to one to one and a quarter percent."

After a two-day policy-setting committee meeting, the U.S. Federal Reserve has raised its benchmark interest rate for the second time in three months.

Fed Chair Janet Yellen on Wednesday announced the rate decision which increased the lending cost in the U.S. to the level in South Korea at one and a quarter percent.

She said that the American economy will expand at a moderate pace over the next few years.

[Sound bite: U.S. Federal Reserve Chair Janet Yellen]
" ...because we also expect the neutral level of the federal funds rate to rise somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion."

Citing improved labor market conditions and low inflationary pressure, she said the Fed will also begin cutting its bond holdings of some four-point-two trillion dollars and other securities this year.

The U.S. central bank had purchased the assets to help the economy ride out the downturn that followed the 2007 financial crisis.

Professor Yang Jun-sok and other Korean economy experts said that the South Korean central bank is now cornered into making a move for the economy sandwiched between capital outflow and household debt concerns.

[Sound bite: Prof. Yang Jun-sok - Economics Dep't, Catholic Univ. of Korea (English)]
"Because the Korean market rate has been rising, the possibility of a rapid capital outflow due to Fed's rate increase, is deemed low; Korean policy rates were lower than US between August 2005 and September 2007, but Korea survived. However, BOK may have to raise its policy rate quickly if capital outflow becomes too rapid. BOK has been reluctant to raise rates due to heavy household debt and lackluster consumption and investment, but it may no longer have a choice if the capital outflow accelerates."

The Fed is expected to hike the key rate one more time this year. When the lending cost was higher in the U.S. than in Korea during the two year period following August of 2005, a total of around 19-point-seven trillion won of foreign capital went out of the local stock market.

Earlier this week, the Bank of Korea(BOK) governor hinted at wrapping up its expansive monetary policy.

He said that the central bank must review the possible need for adjusting the extent of its monetary easing should the economy continue to improve.

The BOK lowered the benchmark interest rate to the all-time low of one-point-25 percent in June last year, and has kept it unchanged for a year.
Kim Bum-soo, KBS World Radio News.