First Vice Minister Lee Hyoung Il convened a Meeting on Macroeconomic and Financial Stability[1] with related institutions on July 31 at the Korea Federation of Banks building. The meeting reviewed the impact of the U.S. Federal Open Market Committee’s (FOMC) decision early this morning (KST) to hold interest rates steady on domestic and global financial and foreign exchange (FX) markets, and discussed future plans.
At the FOMC meeting overnight, the U.S. Federal Reserve (Fed) decided to leave the policy rate unchanged for the fifth consecutive time, keeping the upper bound at 4.5%. In its statement, the Bank assessed that inflation remains somewhat elevated and that uncertainty surrounding the economic outlook remains high. It also noted that two members of the Board dissented from the decision to keep the policy rate unchanged.
At the press conference, Chair Powell stated that the current stance of monetary policy is appropriately restrictive; tariffs have begun to pass through to consumer prices and it is difficult to assess the full impact of the tariffs at this stage. He mentioned that a premature rate cut could risk leaving inflationary pressures unaddressed.
In the early hours of today, global financial markets assessed the Fed’s decision to hold rates steady as being largely in line with expectations. However, U.S. Treasury yields rose and the dollar strengthened, as Chair Powell adopted a more cautious tone compared to market expectations for a potential rate cut at the upcoming FOMC meeting in September.
The meeting participants noted that the domestic stock and bond markets have remained relatively stable in recent weeks, with the KOSPI continuing its upward trend and closing at 3,254 on July 30 – its highest level in over four years since August 6, 2021(3,270). However, they shared the view that close attention should continue to be paid to market volatility with a sense of caution, given the persistent external uncertainties stemming from the economic outlooks of major economies and U.S. monetary and trade policies. In this context, VM Lee emphasized the need to maintain the 24-hour joint monitoring system for financial and FX markets and called for timely, coordinated action among relevant agencies in accordance with contingency plans, when necessary.
[1] Senior Deputy Governor of the Bank of Korea (BOK), Standing Commissioner of the Financial Services Commission (FSC), and First Senior Deputy Governor of the Financial Supervisory Service (FSS).
Please refer to the attached files.
