Hyundai Research Institute Projects US Neutral Rate to Hit 4% Range in H2 2025

Hyundai Research Institute projected on July 12 that the US neutral interest rate will rise to the 4% range in the second half of this year, urging policy responses to prepare for tightening shocks from the United States. The institute's report estimated the Q2 2025 US neutral rate at 3.82% annually, exceeding the current Federal Reserve target range of 3.50-3.75%. The neutral rate refers to a theoretical interest rate that maintains economic potential growth without stimulating inflation or causing recession.

Hyundai Research Institute Forecasts Quarterly Neutral Rate Trajectory Through 2026

The institute projected the US neutral rate will climb to 3.97% in Q3 2025 and 4.09% in Q4 2025. The rate is expected to peak at 4.17% in Q1 2026 before declining slightly to 4.07% in Q4 2026 as price stability continues. The institute explained this forecast aligns with the Federal Open Market Committee's recent dot plot, which indicated the possibility of additional rate hikes within this year.

Institute Recommends Forex Reserves and Domestic Investment Support

The institute stated that if US rate hikes materialize, exchange rate volatility could increase due to expanded global dollar demand, stronger dollar pressure, and foreign capital outflows. The report recommended maintaining foreign exchange reserves at appropriate levels and strengthening foreign exchange market safeguards through expanded currency swaps with major reserve currency countries.

The institute added that US tightening could influence domestic interest rate decisions and increase downward pressure on the domestic economy, necessitating parallel policies to enhance the competitiveness of domestic-focused companies through expanded policy financing and corporate facility investment support.

FAQ

What did Hyundai Research Institute project for the US neutral interest rate on July 12? Hyundai Research Institute projected on July 12 that the US neutral interest rate will rise to the 4% range in the second half of 2025, with Q2 2025 estimated at 3.82%, Q3 at 3.97%, and Q4 at 4.09%.

Why did the institute recommend strengthening foreign exchange market safeguards? The institute stated that if US rate hikes materialize, exchange rate volatility could increase due to expanded global dollar demand, stronger dollar pressure, and foreign capital outflows, requiring maintained forex reserves and expanded currency swaps with major reserve currency countries.