Washington, D.C. The U.S. Federal Reserve.
Chairman Pavil hurled the report aside and shouted at the top of his lungs.
The announcement released by the U.S. Department of Labor at nine o’clock that morning was nothing short of shocking. A CPI of 7.5%... They had steeled themselves and carried out a giant step, yet it had had no effect whatsoever.
“Forget everything else and bring me countermeasures. Why did we fail again?!”
The reason Chairman Pavil was this furious was that even raising interest rates was beginning to strain them.
Of course, other major countries had also unleashed a great deal of fiscal spending during COVID, but America’s CPI was overwhelmingly high, in a league of its own. Accordingly, they had been dropping rate bombs one after another, and yet prices still would not be contained.
“Don’t even bring up excuses like rising raw material prices anymore!”
At present, U.S. interest rates were equal to or higher than those of other major countries. Even so, the turmoil in the foreign exchange market was minimal.
In other words, other countries were managing inflation even with low interest rates.
With that, the rise in raw material prices and instability in the global supply chain, which had until now been singled out as the main culprits behind U.S. inflation, became meaningless explanations.
Were other countries importing their raw materials from Mars? They used the same raw materials, yet only prices in the United States were skyrocketing. This was an internal problem with no room for excuses.
After venting his anger, Pavil looked out at the protesters gathered in front of the Fed again today.
-Fuck! vidon!
-Make america great again!
High interest rates and high prices.
This hell had already continued for months, and now the public’s resentment was turning beyond the Fed and toward the government. With the U.S. presidential election roughly a year away, what kind of variable would the current situation become?
“...Chairman. Forgive my impertinence, but our stamina can still hold out for now.”
It was Vice Chairman Saturn, the leader of the hawks.
“Despite the hikes so far, the Nasdaq and S&P remain solid. On the other hand, other major countries are seeing their stock markets crushed despite low interest rates. For us, our stamina can still hold.”
It was a silver lining amid misfortune.
Despite the Fed’s repeated failures and soaring inflation concerns, hardly anyone feared a second subprime crisis. All of this was thanks to the Nasdaq, which continued its bull run day after day despite all the fierce headwinds.
It seemed global investors might not trust the U.S. dollar, but they still trusted American companies.
“...So we can do more. We must carry out another giant step this time as well.”
This was also the only card the Fed had. Even if every indicator was bad, if the stock market remained intact, wouldn’t it be worth trying to raise rates a little more?
When Vice Chairman Saturn’s report ended, Pavil fell into deep thought.
Two giant steps... Would the U.S. stock market endure this bad news again? If even the stock market toppled over like this, it would lead straight into a recession.
“What does everyone else think?”
Today, the doves were so quiet one might not even know they were attending the meeting. Everyone agreed that even 3.25% was insufficient to bring U.S. inflation under control.
“So there are no objections, is that it? Fine. Then let me ask something fundamental.”
Chairman Pavil let out a deep sigh and asked.
“Can we say this is the end? If our benchmark rate becomes 4.0%... do you really think inflation will be brought under control?”
Vice Chairman Saturn answered immediately.
“Chairman. That will be enough to bring it under control. The last CPI hit 9%, and with the giant step, it came down to 7.5%. If we carry out one more giant step, it will naturally fall below 6%. Personally, I forecast somewhere around 5%.”
Saturn, the leader of the hawks, spoke in a tone full of conviction.
“I can answer with confidence. The terminal point for our benchmark rate will be 4.0%! That will be enough to contain inflation.”
*
“Even 4% won’t be anywhere near enough?”
“Yes.”
“Then how high do you think they’ll raise it?”
“According to that Assistant Manager Lee’s forecast, 4.5% will be the final terminal rate. And he predicted that it won’t just briefly touch 4.5% before coming back down, but will be maintained for quite a long time.”
Nine o’clock early in the morning.
Director Oh and the division head spoke with dark expressions.
Three days ago, the 7.5% CPI announced by the U.S. Department of Labor had been extremely shocking. Accordingly, most experts predicted that the Fed would drop another interest rate bomb.
“Haha... Well, I suppose it really is time for me to retire. I can’t imagine any of this at all.”
The division head smiled bitterly. In truth, he had given up on predicting market conditions two months ago.
By his common sense, a bank going bankrupt because it had bought U.S. bonds poorly was unimaginable.
He had not known that the interest rate gap between Korea and the U.S. would reverse, nor had he imagined that the exchange rate would remain stably managed despite that. And even after going that far, he truly could not have imagined that U.S. inflation would still not be contained.
The thirty years of investment experience he had built up no longer worked. He was feeling a flood of complicated emotions over the fact that a report by an employee in his second year was more accurate than his own predictions.
“So, how is the raw material purchase going?”
That was why he had been able to give even bolder instructions.
Raw material purchases were an area the pension fund, which preferred lazy investments, had never touched before. In his thirty years at the company, the division head had never carried out such aggressive investing.
“Yes, we’re almost finished purchasing 500 billion won.”
“How did you do it?”
“We invested 30% of the assets into ten industrial raw materials. However, I don’t think the supply chain instability will last long. So we put them into short-term and ultra-short-term products.”
“Good. Raw materials absolutely do not trend upward over the long term. I’m glad our thoughts align on that part. Then what about the remaining 70%?”
“Gold.”
Director Oh hesitated for a moment.
“Unlike the other raw materials, we approached gold as a long-term holding. We approached it through physical gold, not futures or options, and purchased it gradually according to market conditions.”
“I see. So how much is left now?”
“We still have about 70 billion won remaining.”
“Is that 70 billion simply waiting for my permission?”
Director Oh gave an awkward smile.
The division head fell into thought for a moment.
A secret operation fund of 500 billion won... Even if the pension fund managed 1,000 trillion won, this was by no means a small sum. If this investment ended in failure, more than one hyena would come pouncing.
During the previous SB crisis, the pension fund had miraculously escaped from a sinking ship, but the media had focused only on the 60% loss and raised questions of responsibility. With the depletion point approaching right before their eyes, the entire public had become sensitive.
If a raw material investment ended in failure in times like these... he did not even want to imagine what would come afterward. Not only would it be splashed across the headlines, but one day, out of nowhere, a warrant might come flying from the prosecution.
Because under the law of public sentiment, there was a clause for the crime of being offensive: if they found you displeasing, they would punish you even if they had to invent a crime.
“On that part, we think differently again. Director Oh... do you think gold will trend upward?”
“It always has, hasn’t it? That’s why it’s a safe asset.”
“There’s a limit to that too. During the zero-interest-rate period, it already jumped threefold. Right now, it’s actually in a downtrend. Moreover, at a time when U.S. rate hikes are expected, is investing in that lump of rock that doesn’t even pay interest really right?”
“...Assistant Manager Lee’s consistent position is that inflation concerns will overpower concerns over high interest rates. I think the same.”
After hearing the answer, the division head smiled bitterly and handed over a report.
“Fine. Then let’s trust him one more time. Purchase another 70 billion won’s worth within today, and for the time being, stay away from raw materials.”
“Yes, understood.”
“And from now on, focus more on global stock markets rather than America. If the Fed carries out a rate hike, there will definitely be side effects in global markets.”
“Yes.”
“Even if we have to take some losses, let’s clean up businesses with no prospects.”
The overseas equity team would have to work overtime like eating meals for the time being.
During COVID, every country had implemented zero interest rates, and the market had become bloated with bubbles. But if U.S. rates moved at that speed, the bubbles would drain away very quickly.
In truth, blue-chip stocks revealed their true value in downturns rather than booms.
Once the bubbles drained away, the bare faces of insolvent companies would be exposed. Determining which companies had been bubbles and which would survive became the task of the pension fund managers.
After returning to his seat, Director Oh immediately called in the team leaders and managers.
“I’ll start with the conclusion. The division head has permitted the remaining purchase.”
“Yes...”
“Team Leader Kim. What do our gains and losses look like right now?”
“The ten raw materials haven’t had that much price fluctuation. It seems most of the inflation up to this point had been expected, and the Fed’s rate hike also appears to have already been priced in. However...”
“However?”
“Gold has been in a weak market day after day. It’s down about 4% compared to our purchase price.”
Was it because of the fatigue from its rapid short-term rise?
Recently, gold had continued to show weakness.
“Then that’s actually fortunate. We can buy it cheaper.”
“But, Director...”
“Buy it. We’re going to hold gold for the long term anyway. Don’t cling to the price right now.”
At Director Oh’s unwavering instruction, Team Leader Kim nodded.
“Understood. Then I’ll make the purchase right away.”
Once everyone withdrew, only Team Leader Choe Gukhan remained.
“Director. Will this really be all right...?”
“What do you mean?”
“Honestly, this entire portfolio we’ve taken on is all because of Assistant Manager Lee. In the past ten years, this is the first time I’ve seen the pension fund handle raw materials.”
“It’s my first time too.”
“Then shouldn’t we be a little more cautious...”
“But in the past ten years, has there ever been a market situation like this in global stocks?”
“...”
“In twenty years, this is the first time I’ve seen the Fed fail at managing inflation like that. It wasn’t even like that during subprime.”
In 2004, America’s benchmark rate was 1.0%. In 2006, America’s benchmark rate had risen to 5.25%.
Over a full two years, interest rates rose by roughly 4%, and in the aftermath, U.S. real estate collapsed.
And now, at present. At a speed about four times faster than that, in roughly six months, the U.S. benchmark rate was looking toward 4%.
At the time of subprime, the price of gold broke through $1,000 per ounce, then soared all the way to $1,900 in just three years. Even then, the existing theory that “when interest rates rise, gold prices fall” did not work.
That was why Director Oh was even more certain.
When global market conditions rushed toward the unpredictable and uncontrollable, market funds would ultimately all flock to gold. This point had also been detailed in the report Sejun wrote, and Director Oh agreed with that opinion a hundred times over.
“In any case, the division head has instructed us to focus more on other stock markets than on America. The fallout from high interest rates originating in the U.S. will definitely have a major impact on other key countries as well. We need to handle this restructuring—”
-Bang!
In the middle of his words, Team Leader Kim, who had just left, flung the door open without even knocking.
“Wh-what is it? Did you make a buying mistake?!”
“N-no. The purchase was executed normally. All 70 billion won of it. But...”
“But what?”
Team Leader Kim hurriedly held up the news screen.
“Chairman Pavil just hinted at a rate hike in an interview with Wall Street. Another giant step... But the tone was practically closer to a warning telling them to prepare because he was going to raise it.”
Director Oh’s eyes snapped open.
The market currently saw a 0.5% hike by the Fed as the most likely scenario.
But another giant step!
“What is the U.S. benchmark rate right now?”
“It’s 3.25%. If this hike is carried out... starting next week, it will be 4%.”
As the report continued, Manager Park and Manager Oh, who were in charge of monitoring raw materials, came running in.
“D-Director. I think you need to come for a moment. After Chairman Pavil’s remarks, the raw materials market is exploding. Gold is also surging by about 6%!”
*
After Chairman Pavil’s interview on the giant step.
The U.S. market fluctuated violently, and our office likewise shook.
[Breaking News - Chairman Pavil Hints at Another Giant Step!]
[Will U.S. Rates Finally Reach 4%? Raw Material Prices Soar on Surging Inflation Concerns!]
Thanks to that, our pension fund, which had purchased raw materials in advance, was able to reap enormous profits. Enough to sufficiently make up for the losses we had taken from investing in long-term U.S. bonds.
-That’s some timing!
-How does gold surge right after we buy it?!
-It already went up threefold, and it’s going up again?
Everyone was excited like that, but I was not particularly happy.
[Abnormal Signs in Chinese Real Estate... Fallout from U.S.-Driven High Interest Rates?]
Knowing the future was a little tiring.
For now, the media was still handling it at the level of concern, but soon, that story would become reality... In my eyes, rather than the success of the raw materials investment, I could only see Chinese real estate.