Korea braces for potential volatility after Fed's large rate cut

As the U.S. Federal Reserve made a bold move to cut its key interest rate by a large 0.5 percentage points while signaling for further reductions, the Korean government said that it would brace for any potential impact on its market.

U.S. Federal Reserve Board Chair Jerome Powell speaks during a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, on Wednesday. [REUTERS/YONHAP]

As the U.S. Federal Reserve boldly cut its key interest rate by 0.5 percentage points while signaling further reductions, the Korean government said Thursday that it would brace for any potential impact on its market.

“The global financial market remained relatively stable as expectations for a large cut have partially been priced in already,” said Finance Minister Choi Sang-mok in his remarks during a senior official meeting among four economic policy chiefs in the country, following the U.S. rate cut decision made overnight.

“However, as shown in the global stock market plunge in early August, the market volatility may increase during the transition in monetary policy, while geopolitical uncertainties, including ongoing wars in the Middle East and Ukraine, and the looming U.S. presidential election, remain significant,” said Choi.

The minister vowed that the government will “remain vigilant to address potential changes in internal and external economic situations.”

The meeting, held in Seoul, was attended by Bank of Korea Gov. Rhee Chang-yong, Financial Services Commission Chairman Kim Byoung-hwan and Financial Supervisory Service Gov. Lee Bok-hyun.

The U.S. Federal Open Market Committee decided to cut the federal funds rate by 0.5 percentage points, a larger reduction than the typical 0.25 percentage point adjustments, to the 4.75 percent to 5 percent range. This is the first rate cut since 2020, and marks a policy shift 30 months after the Fed implemented its first rate hike in 2022 after the Covid-19 outbreak.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]