"US Exceptionalism" Warning Light, Has the US Economy Reached a Turning Point... South Korea Also 'Watching' [Why&Next]

Growth Slows, Uncertainty Rises for U.S. Companies Amid 'Tariff Push-and-Pull'
Policies to Address Trade and Fiscal Deficits Raise Concerns Over Inflation and Economic Slowdown
Sluggish Growth... Need to Confirm a Turning Point, This Month's Indicators in Focus

Amid a global economic slowdown, attention is focused on this month's major economic indicators as warning signs have been raised against the 'American exceptionalism' outlook, which predicted that the United States would enjoy an exceptional boom. Analysts suggest that the early policies of the Trump administration's second term, aimed at addressing chronic trade and fiscal deficits, are accelerating the U.S. economic slowdown. Depending on the results of key indicators that will confirm whether there is a turning point in the economy, U.S. monetary policy may also change its direction and pace, prompting the Bank of Korea to closely monitor the situation.

Growth Slows but Major IBs Maintain 50% Probability of Less Than One U.S. Rate Cut This Year

Recent economic indicators have confirmed a slowdown in U.S. growth. According to the 'U.S. Economic Situation and Assessment' report published on the 11th by the Bank of Korea's New York office, consumption shifted to a decline, and sentiment indicators showed weak trends. In January, U.S. personal consumption expenditures fell by 0.5% compared to the previous month. Goods consumption sharply decreased from 1.1% to -1.7%. In February, the Consumer Confidence Index (98.3) fell below the baseline (100) and declined from the previous month (105.3). The future economic outlook index dropped from 82.2 in January to 72.9 in February, falling below the threshold of 80, which is considered a signal of an impending recession.

February employment was not considered alarming, but the increase in the number of employed persons fell short of expectations, and the unemployment rate rose. Nonfarm payrolls increased by 151,000, below the market forecast of 160,000. The unemployment rate rose to 4.1%, the labor force participation rate fell to 62.4%, and the number of unemployed also increased. The housing market showed weakness as sales growth slowed despite continued price increases. The U.S. economic growth rate for the first quarter of this year is forecasted at -2.4%. This marks a shift from 11 consecutive quarters of growth through the fourth quarter of last year, indicating a high possibility of economic contraction.

In this context, the U.S. Federal Reserve (Fed) is expected to maintain a dovish monetary policy stance while exercising caution until some uncertainties are resolved. Among 10 major global investment banks (IBs), half?five institutions?maintained their January forecast that the U.S. policy rate would be cut only 0 to 1 time this year. Eight out of 10 expected rate cuts to be no more than twice. However, futures market expectations for Fed rates were revised downward after mid-February amid growing concerns about economic weakness.

Support for a 'rate hold' at the Federal Open Market Committee (FOMC) meeting on the 18th-19th has strengthened. Fed Chair Jerome Powell recently gave a positive assessment of the U.S. economy, easing market concerns that Trump’s policies could lead to a growth recession. However, he still rated tariff uncertainties as 'very high.' The direction of monetary policy will be decided after reviewing the Trump administration’s policy trajectory.

Biggest Variable: Trump’s Tariff Policy... Need to Watch 'Hard Data' on Economic Slowdown

U.S. Treasury Secretary Steven Mnuchin recently suggested that while government spending is being reduced, there will be a 'detox period' for the market and economy, implying that the recent U.S. economic slowdown remains within a controllable range. However, market concerns about stagflation?where rising prices coincide with economic stagnation?persist. This is because the early policies of the Trump administration focus on improving the current account deficit through tariff hikes and fiscal balance through federal government restructuring.

The market widely agrees that the biggest variable in assessing the weakening of American exceptionalism is Trump’s tariff policy. The 'tariff push-and-pull' aimed at reducing the trade deficit is increasing uncertainty by raising fatigue among U.S. companies. The International Finance Center identified 'Trump’s tariff policy' as the largest risk factor in the global risk landscape for March. As the U.S. economy, which had previously defended against the global downturn, shows signs of slowing at the start of the year, the risk of recession has become more influential than before.

Hwang Won-jung, senior researcher at the International Finance Center, explained, "The chaotic situation of imposing and suspending tariffs repeatedly with major trading partners such as Canada, Mexico, and China inevitably leads to divergent profit and loss forecasts in key industries." Park Sung-woo, a researcher at DB Financial Investment, also said, "Depending on the extent of tariff policy implementation and the scale of government workforce restructuring, there is a risk that the economic slowdown could be greater than expected," adding, "As negative policies are prioritized in the early stages of the Trump administration, American exceptionalism is expected to gradually weaken."

So far, economic indicators support the Fed’s cautious stance. However, as the Trump administration’s policies begin to take effect this month, if quantitative economic indicators (hard data) deteriorate significantly, the Fed’s position could also change, which should be noted. Jina Kim, a researcher at Eugene Investment & Securities, said, "If continuous and meaningful contractions in hard data are confirmed, in addition to sentiment, leading, and expectation indicators (soft data), monetary policy could also accelerate." Major IBs also expect that the Fed’s policy direction will become clearer after the economic indicators and the Trump administration’s economic policies visibly impact the U.S. economy.

The Bank of Korea, which determines domestic monetary policy, is also closely monitoring the situation. Changes in U.S. trade policy, interest rates, economic conditions, and inflation trends have complex effects on the Korean economy and subsequent monetary policy decisions. Lee Young-won, a researcher at Heungkuk Securities, said, "Considering that Korea records surpluses in key industries subject to U.S. tariffs such as automobiles and semiconductors, there is a high possibility that not only economic shocks from the U.S. but also direct trade-related shocks will materialize during the implementation of the Trump administration’s policies," adding, "We need to carefully monitor related issues until the specific details of each policy are finalized."