[Edaily Reporter Kim Kyung-eun ] Forecasts suggest that short-term volatility in the domestic stock market may increase as the U.S. Federal Reserve (Fed) adopted a more hawkish (monetary tightening) stance than expected. However, analysts note that since the KOSPI has historically risen on average during past interest rate hikes, the direction of the economy and corporate earnings—rather than the rate hikes themselves—will likely determine the stock market’s trajectory.

Han Ji-young, an analyst at Kiwoom Securities, stated in a report on the 17th, “We should avoid interpreting this September’s 25-basis-point (1 bp = 0.01 percentage point) rate hike as something that will derail the trend of the domestic stock market,” adding, “The intensity of subsequent tightening and the direction of corporate earnings are more important than whether this is the first hike.”

On the 16th (local time), the Federal Reserve raised the benchmark interest rate by 0.25 percentage points from the previous range of 3.50–3.75% per annum to 3.75–4.00% at its September Federal Open Market Committee (FOMC) meeting. While the rate hike itself was largely anticipated by the market, the dot plot, economic outlook, and Fed Chair Kevin Warsh’s press conference were assessed as being more hawkish than expected. As a result, on the New York Stock Exchange, the Dow Jones Industrial Average fell 1.21%, the S&P 500 dropped 0.45%, and the Nasdaq declined 0.01%.

In the dot plot, which reflects Fed members’ interest rate projections, the median forecast for the benchmark interest rate at the end of this year rose from 3.8% to 4.1%. This suggests the possibility of one additional rate hike this year. The forecast for the end of next year was also set at 4.1%, increasing the likelihood that high interest rates will persist for a considerable period even after the additional hike.

However, analysts note that the Fed’s ability to raise rates further is underpinned by a stronger-than-expected economy. The Fed raised its forecast for U.S. gross domestic product (GDP) growth this year from 2.2% to 2.3% and lowered its unemployment rate forecast from 4.3% to 4.1%. The forecast for the Personal Consumption Expenditures (PCE) price inflation rate was raised from 3.6% to 3.7%. This reflects the assessment that the robust economy and job market can withstand further tightening, rather than the Fed raising rates at the risk of triggering a recession.

Historically, interest rate hikes have not immediately led to stock market declines. According to Kiwoom Securities, there have been a total of six Fed rate-hiking cycles since 1994, during which the S&P 500 recorded an average return of 7.5% and the KOSPI recorded 9.1%. In contrast, during periods of rate cuts, the average returns were -0.1% for the S&P 500 and 0.1% for the KOSPI.

An analyst commented on this, stating, “This does not mean that interest rate hikes are positive for the stock market; rather, it shows that the economic and earnings cycles at the time had a greater impact on stock prices than the direction of monetary policy.” The analyst added, “We believe that during interest rate hike cycles implemented while the economy was growing or corporate earnings momentum was robust, rising earnings offset the burden of higher discount rates.”

Even when looking solely at the period following the first rate hike, the KOSPI showed an upward trend over time. Following the first rate hike since 1994, the KOSPI’s average return was 1.4% one month later, 2.2% three months later, and 3.9% six months later.

The robust profit outlook for domestic companies is also cited as a factor supporting the stock market. Currently, the 2026 operating profit forecast for KOSPI-listed companies remains around 990 trillion won. However, the sharp decline in the won-dollar exchange rate is a wildcard. The exchange rate, which averaged around 1,502 won in the second quarter, fell by about 5% to the 1,420 won range in the third quarter, weighing on the earnings outlook for export-oriented sectors such as semiconductors, automobiles, and displays.

Accordingly, the domestic stock market is expected to experience increased volatility for the time being as it digests the FOMC results. However, Kiwoom Securities analyzed that when assessing the future direction of the stock market, the pace of rise in the U.S. 10-year Treasury yield, international oil prices, and corporate earnings trends should be considered more important than whether there will be an additional 25-basis-point rate hike. In particular, the firm explained that even if the 10-year yield exceeds 5%, the key factors will be whether the pace of the rise moderates and whether corporate earnings growth is sustained.

One analyst stated, “It is reasonable to base our outlook on a scenario where the pace of long-term interest rate increases moderates and KOSPI earnings momentum is sustained ahead of the third-quarter earnings season.”