Bank of Korea: "Fed Rate Cut Increases Capacity to Focus Monetary Policy on Domestic Conditions"

Market Situation Review Meeting Held Following U.S. FOMC Decision

The Bank of Korea assessed that the U.S. Federal Reserve's decision to cut its benchmark interest rate has increased the Bank of Korea's capacity to focus its future monetary policy on domestic conditions. However, it also diagnosed that uncertainty remains high regarding the path of U.S. monetary policy, and that external risks such as the impact of U.S. tariffs persist.

Park Jongwoo, Deputy Governor of the Bank of Korea, held a market situation review meeting on the morning of the 18th to examine the impact of the U.S. Federal Open Market Committee (FOMC) decision on international financial markets and the domestic financial and foreign exchange markets.

Deputy Governor Park stated, "With the Federal Reserve lowering its interest rate again after nine months, the Bank of Korea now has greater capacity to manage monetary policy with a focus on domestic economic conditions, inflation, and financial stability."

However, he added, "There is still significant uncertainty regarding the future path of U.S. monetary policy, as Federal Reserve officials have highly divergent policy rate outlooks. In addition, external risk factors such as uncertainty over future U.S. tariff policies and concerns about fiscal soundness in major economies remain present." He continued, "We will closely monitor market conditions with heightened vigilance."

On the 17th (local time), the Federal Reserve concluded its regular FOMC meeting and cut the benchmark interest rate by 0.25 percentage points to a range of 4.00% to 4.25% per year. In its Summary of Economic Projections (SEP), the Federal Reserve raised this year's economic growth forecast from 1.4% to 1.6%, but lowered its policy rate outlook (from 3.9% to 3.6% by the end of this year, and from 3.6% to 3.4% by the end of next year).

Federal Reserve Chair Jerome Powell emphasized at a press conference that downside risks related to employment have increased, and that the latest rate cut was a risk management measure. He maintained a cautious stance, stating that future policy decisions will be data-dependent.

The Bank of Korea explained, "In international financial markets, following Chair Powell's press conference, U.S. Treasury yields rebounded and the dollar strengthened, while stock prices turned slightly weaker." In the U.S. Treasury market, the yield on two-year bonds rose by 0.05 percentage points and the yield on ten-year bonds increased by 0.06 percentage points compared to the previous day. The U.S. dollar also strengthened, with the Dollar Index (DXY) rising by 0.4%. In contrast, the major stock index S&P 500 closed slightly lower, down 0.1%.