Deputy Prime Minister Koo Yoonchul: "U.S. Rate Cut Has Limited Impact on Domestic Economy"

First F4 Meeting Since Launch of Lee Jaemyung Administration
U.S. Fed Cuts Policy Rate by 0.25%
Deputy Prime Minister: "Monitoring U.S. Tariff Negotiations and More"

Deputy Prime Minister and Minister of Economy and Finance Koo Yoonchul assessed on the 18th that the U.S. Federal Open Market Committee (FOMC)'s decision to cut interest rates would have only a limited direct impact on the domestic economy. However, he pointed out that ongoing measures are needed to address major risk factors, including the progress of U.S. tariff negotiations and the possibility of increased uncertainty in international financial markets.

Presiding over a joint "Expanded Macroeconomic and Financial Meeting" with related agencies at the Bankers Association Hall that morning, Deputy Prime Minister Koo commented on the FOMC outcome, saying, "The global financial market accepted this rate cut as expected, but showed mixed trends as attention focused on the future uncertainties mentioned by Jerome Powell, Chair of the U.S. Federal Reserve."

Deputy Prime Minister Koo explained, "Through last night's meeting, the Federal Reserve lowered its policy rate by 25 basis points (1bp=0.01 percentage point) for the first time in about nine months since December last year. The upper bound of the policy rate was reduced from 4.5% to 4.25%. While the Fed also revised its future rate outlook downward with this rate cut, it raised its inflation forecast and presented somewhat improved figures for growth and employment compared to previous projections."

Deputy Prime Minister Koo also commented on the internal dynamics within the Fed. He said, "The opinions of Fed members are widely dispersed, which means uncertainty remains regarding the economy and the path of interest rates. Jerome Powell, the Fed Chair, also emphasized during his press conference that the risk of a downturn in employment is increasing and that close attention must be paid to the impact of tariffs on inflation." He added, "Powell made it clear that both of the Fed's dual mandates-inflation and employment-face risk factors in this challenging environment."

Deputy Prime Minister and Minister of Economy and Finance Koo Yoonchul is delivering opening remarks while presiding over the expanded Macroeconomic and Financial Meeting held at the Bankers Hall in Jung-gu, Seoul on the 18th. (From left in the photo) Lee Chanjin, President of the Korea Institute of Finance; Deputy Prime Minister Koo; Lee Eokwon, Chairman of the Financial Services Commission; Yoo Sangdae, Deputy Governor of the Bank of Korea (Provided by the Ministry of Economy and Finance) Photo by Paek Jongmin

Immediately after the rate cut announcement, global financial markets generally evaluated the outcome as being in line with market expectations. At the same time, however, there was a heightened sense of caution regarding uncertainty. Deputy Prime Minister Koo commented on the domestic financial market trends following the FOMC decision, stating, "So far, our financial markets have remained stable. The KOSPI index has continued to hit record highs this month, driven by net foreign purchases, and the won-dollar exchange rate has declined somewhat due to increased foreign investment in the stock market." He added, "The conditions for corporate fundraising, including corporate bond issuance, are also favorable."

Nevertheless, Deputy Prime Minister Koo emphasized that there are still considerable potential risks both at home and abroad. He said, "Global uncertainty persists, including U.S. tariff policies and trends in key economic indicators. In addition, household debt, real estate market trends, and the need to strengthen the competitiveness of core industries such as petrochemicals can also act as major risk factors."

Participants in the meeting generally agreed that the direct impact of this rate cut on the domestic economy would be limited. While they noted that "the Fed is likely to continue its rate-cutting stance as expected," they also stressed the need to monitor the progress of U.S. tariff negotiations and the possibility of increased uncertainty in international financial markets going forward.

During the meeting, the government outlined specific tasks for future policy responses, including: strengthening monitoring of global uncertainty factors such as U.S. tariff negotiations and economic indicators; managing household debt and real estate market stability; supporting the strengthening of competitiveness in core industries such as petrochemicals; and maintaining close communication among institutions. Deputy Prime Minister Koo emphasized, "In particular, if external uncertainty increases, it could affect sentiment in the domestic financial market, so preemptive and flexible policy responses are necessary."

Meanwhile, the expanded Macroeconomic and Financial Meeting held on this day was the first F4 meeting convened since the inauguration of the Lee Jaemyung administration, organized to discuss the impact on domestic financial and foreign exchange markets and future policy responses. The meeting was attended by Deputy Prime Minister Koo, Bank of Korea Governor Lee Changyong (via video), Financial Services Commission Chairman Lee Eokwon, and Korea Financial Supervisory Service President Lee Chanjin.