[Econ & Biz] Fed holds rates steady amid 'uncertainty'; what that means for S. Korea's future rate decisions

The U.S. Federal Reserve has left its key interest rate unchanged yet again, a decision made at a critical time when it comes to not just the U.S. economy, but also the world economy.

For more on this, our economics correspondent Lee Soo-jin joins us in the studio.

Soo-jin, first, tell us about the decision and where the rates stand now.

Sure, so in its third monetary policy meeting of the year,

the U.S. Fed has decided to continue its "wait-and-see" stance by, as you just said, keeping rates steady.

The decision to keep the current key borrowing rate range of 4-point-2-5 percent to 4-point-5 percent on Wednesday extends the pause in the Federal Open Market Committee's rate-cutting cycle, which has been in place since January.

Here's what Fed Chair Jerome Powell said were the reasons behind the rate freeze decision.

"The risks of higher unemployment and higher inflation appear to have risen, and we believe that the current stance of monetary policy leaves us well-positioned to respond in a timely way to potential economic developments."

And these risks to employment and inflation the two pillars of the Fed's dual mandate stem from the uncertainty surrounding President Trump's tariffs.

The decision to hold rates steady was thus unanimous, despite weeks of pressure from Trump to lower them, resulting in him even threatening to fire Powell which he backed off of.

Still, he and his administration remained firm in their stance that the Fed should cut rates, arguing that high borrowing costs are no longer needed as prices have steadily cooled.

But according to one expert, while recent inflation data shows some easing, future price trends remain uncertain due to Trump's ongoing tariff threats.

Let's take a listen.

"The latest report on consumer inflation saw a 2-point-4 percent year-on-year rise in March. The one-year outlook compiled by the University of Michigan stands at 6-point-5 percent. The main driver of the jump in inflation expectation is President Trump's tariff policies."

Then when is the Fed expected to lower rates?

Right, so experts remain divided on exactly when this will happen.

And that's because the Fed is likely to wait until it is more certain about the economic impact of tariffs.

Let's listen.

"But the fact is that the markets hate uncertainty. And by the way, so does the Fed. So the Fed doesn't want to do anything until we get clarity. And that's going to take some time,"

And this is in line with how Powell said that it "depends" when asked if there will be rate cuts at all this year.

Tangible economic data required before the Fed cuts rates, include inflation remaining relatively contained while the job market or economic growth weakens further.

And according to an expert, this impact will surface in the second half, also when rate cuts are expected to begin.

"They'll definitely start cutting rates in the second half. With oil prices and other factors relatively stable, inflation is starting to ease. Once that trend becomes clear, the Fed will likely move to lower rates more decisively."

What does all this mean for the future policy rate decision here at home?

Well, it does quite a bit,

because the Bank of Korea closely watches the Fed's interest rate decisions.

The latest rate freeze leaves the key interest rate gap between South Korea and the United States at 1-point-7-5 percentage points based on the upper end of each country's rates.

And the rate gap puts the BOK in a tough position ahead of its own meeting later this month, as an even larger gap could lead to capital outflows that push the won down further raising import costs and adding to inflation.

But Korea's central bank is likely to lower interest rates due to the sluggish domestic economy.

Here's what another expert said.

"While the exchange rate is now in the upper 1-thousand-3-hundred-won range, domestic factors are becoming more important for rate cuts. Ideally, the Fed would cut rates too, but given Korea's tough domestic situation, many expect the Bank of Korea to cut rates in May."

Data released by the central bank last month showed that the country's real gross domestic product, a key indicator of the economy, shrank by 0-point-2 percent quarter-on-quarter in the first quarter.

The government vowed to remain vigilant, as Acting Finance Minister Kim Beom-seok said on Thursday in response to the Fed leaving rates unchanged, that the government will hold weekly macroeconomic and financial meetings to monitor markets and ensure economic stability.

All right, thank you for your report today.

Thank you for having me.