Government Responds to Warsh Shock: "Real Economy and Financial Markets Remain Solid... 24-Hour Monitoring in Place"

Market Situation Inspection Meeting Held

Lee Hyungil, Deputy Minister of Finance and Economy, is presiding over an emergency market situation inspection meeting held on the 3rd at the Government Seoul Office in Jongno-gu, Seoul. Ministry of Finance and Economy

The government announced on February 3 that, in response to significant volatility in the domestic financial and foreign exchange markets caused by fears of Washi-led monetary tightening, it will continue to operate a 24-hour monitoring system to closely track domestic and international market trends, citing ongoing global uncertainties such as U.S. tariff policies and geopolitical conflicts.

The Ministry of Finance and Economy held a market situation inspection meeting on this day, presided over by First Deputy Minister Lee Hyungil, to assess the impact of the nomination of the new Federal Reserve (Fed) Chair on the domestic financial market. The meeting was attended by the Deputy Governor of the Bank of Korea, the Vice Chairman of the Financial Services Commission, and the Senior Deputy Governor of the Financial Supervisory Service.

Previously, U.S. President Donald Trump nominated Kevin Warsh as the next Fed Chair. Warsh, who opposed quantitative easing (QE) during his previous tenure as a Fed Governor, has sparked fears in the market of a potential reduction in accommodative liquidity policies, leading to heightened volatility.

The previous day, both the KOSPI and KOSDAQ in the domestic stock market recorded intraday declines of more than 5%, reversing their upward trend after five trading days. Large-scale sell-offs were observed, mainly by foreign investors and institutional investors.

Participants assessed that "the KOSPI index's adjustment the previous day was due to the decline in the U.S. stock market following the nomination of the Fed Chair candidate, as well as short-term profit-taking after a sharp rise in stock prices." They also mentioned that the won-dollar exchange rate is experiencing increased volatility in line with recent global financial market trends.

Although Warsh's nomination was considered highly likely, the market shock was attributed not only to monetary policy uncertainty risks but also, and more significantly, to the recent unprecedented surge in asset prices.

The participants agreed that "the fundamentals of Korea's real economy and financial markets remain solid." They diagnosed that the economic recovery is continuing, noting that growth improved significantly in the second half of last year compared to the first half, January exports this year saw the largest increase in 56 months, and consumer sentiment has exceeded the baseline (100) for nine consecutive months, the first time in 3 years and 8 months that such a streak has occurred.

They also emphasized, "We have sufficient policy capacity to respond to external uncertainties," and added, "We will swiftly implement policies to advance the capital market, including tax law revisions, improvements in corporate governance, establishment of a fair market order, and enhancement of KOSDAQ market competitiveness."