Government Reviews Impact of US FOMC: "Heightened Vigilance... Timely Response to Excessive Divergence"

Macroeconomic and Financial Policy Meeting Presided Over by Deputy Prime Minister

Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul is taking a commemorative photo before the start of the expanded macroeconomic and financial meeting held at the Korea Federation of Banks in Jung-gu, Seoul on the 19th. From left, Lee Chan-jin, Financial Supervisory Service Director, Lee Chang-yong, Governor of the Bank of Korea, Deputy Prime Minister Koo, and Kwon Dae-young, Vice Chairman of the Financial Services Commission. Ministry of Economy and Finance

Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul stated on the 19th, "We are closely monitoring the foreign exchange market with heightened vigilance and keeping a careful watch on market conditions," adding, "If the movement of the Korean won deviates excessively from fundamentals, we will respond in a timely manner."

Deputy Prime Minister Koo made these remarks while presiding over the expanded macroeconomic and financial meeting on the 19th, which was attended by Lee Chang-yong, Governor of the Bank of Korea, Lee Chan-jin, Director of the Financial Supervisory Service, and Kwon Dae-young, Vice Chairman of the Financial Services Commission.

On this day, Deputy Prime Minister Koo and other participants discussed the key outcomes of the U.S. Federal Open Market Committee (FOMC) meeting, the impact on domestic and global financial and foreign exchange markets, and possible policy responses.

The FOMC, which convened overnight, kept its benchmark interest rate unchanged at 3.50–3.75% as expected. However, comments by U.S. Federal Reserve Chair Jerome Powell during his press conference—stating that while the U.S. economy remains generally robust, it is still difficult to predict the ripple effects of supply shocks originating in the Middle East and rising oil prices—were interpreted as hawkish by the market, resulting in volatility in both domestic and global financial markets.

On this day, the won-dollar exchange rate opened above 1,500 won, climbing in response to the FOMC results and escalating tensions in the Middle East. In terms of intraday weekly trading, this marks the highest level since March 10, 2009, during the financial crisis, when it reached 1,561.0 won.

Overnight, all three major indices on the New York Stock Exchange fell by more than 1%. The KOSPI index also opened at 5,761.40, down 2.76% from the previous session, and has continued to trend downward.

The participants assessed that while the FOMC’s decision to hold rates steady was in line with market expectations, "uncertainty about the direction of U.S. monetary policy persists due to concerns about inflation driven by rising international oil prices."

Deputy Prime Minister Koo said, "Due to ongoing uncertainty in the Middle East, volatility in the financial and foreign exchange markets continues," adding, "We will conduct stress tests across the entire financial sector, simulating various shock scenarios for exchange rates, stock prices, interest rates, and oil prices—even considering worst-case situations—to inspect and strengthen our crisis response capabilities. Additionally, we will proactively prepare to expand the market stabilization program to a scale of 100 trillion won."

He also stated that efforts to reform the structure of the financial and foreign exchange markets would be accelerated, including prohibiting dual listings, separating the KOSDAQ segment, and pursuing inclusion in the MSCI Developed Markets Index.

Meanwhile, participants agreed that if rising oil prices lead to a chain reaction of higher costs for fuel, logistics, and delivery, along with deteriorating consumer sentiment, the difficulties faced by vulnerable groups could intensify, and there could be negative impacts on the real economy, including domestic demand and exports. Therefore, they concurred on the need to formulate a supplementary budget as soon as possible to support public welfare and economic recovery.

Given that the GDP gap remains negative and overall demand-side pressure is low, participants shared the view that if a supplementary budget is implemented using excess tax revenues rather than by issuing deficit-financing government bonds, the impact on inflation as well as on the financial and foreign exchange markets will be limited. They also agreed that it would be most effective to focus direct and differentiated support on vulnerable groups and regions most affected by high oil prices.

This content was produced with the assistance of AI translation services.