Finance minister warns of global volatility as Fed holds rates steady

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Finance minister warns of global volatility as Fed holds rates steady

Published: 21 Sep. 2023, 17:36 Updated: 21 Sep. 2023, 17:44

JIN MIN-JI
jin.minji@joongang.co.kr

Finance Minister Choo Kyung-ho, second from right, speaks during a meeting held with financial regulators in central Seoul on Thursday. [MINISTRY OF ECONOMY AND FINANCE]

The global financial market may grow more volatile as policy rates are expected to stay high for a prolonged period, said Finance Minister Choo Kyung-ho on Thursday following the Fed’s decision to hold the target rate at a 22-year high of 5.25 to 5.5 percent.

“The government and the Bank of Korea will feel a particular sense of alertness and closely coordinate to respond” to the impacts of the Fed’s decision, said Choo in a statement during a meeting held with chiefs of Bank of Korea, the Financial Services Commission and the Financial Supervisory Service in central Seoul.

Choo said domestic finance and foreign exchange markets are “relatively stable” despite expanded global uncertainties. But he noted the need to take measures according to the contingency plan as global uncertainties, like a rise in global oil prices, remain.

North American benchmark crude West Texas Intermediate traded at $90.3 on Wednesday, up from around $70 in late June.

The finance minister said the government will add liquidity to the market through the purchase of corporate bonds or commercial paper if necessary.

The meeting followed the two-day rate-setting Federal Open Market Committee (FOMC).

“Recent indicators suggest that economic activity has been expanding at a solid pace,” read the FOMC statement. “Job gains have slowed in recent months but remain strong.”

“We are in a position to proceed carefully in determining the extent of additional policy firming that may be appropriate,” said Fed Chairman Jerome Powell in the post-meeting press conference.

Projections released in the Fed’s dot plot showed the chance of one more increase this year and two cuts in the following year, which is fewer than were indicated in June.

“Inflation has moderated somewhat since the middle of last year, and longer-term inflation expectations appear to remain well anchored,” Powell said. “Nevertheless, the process of getting inflation sustainably down to 2 percent has a long way to go.”

U.S. headline inflation grew 3.7 percent in August from a year earlier, accelerating for the second straight month, pushed up by rising gas prices. But core inflation, which excludes volatile food and energy prices, continued to slow to 4.3 percent from 4.7 percent over the same period.

The Fed members also updated their 2023 economic growth expectations to 2.1 percent this year, compared to a 1 percent estimate from June.

Kospi on Thursday fell 1.75 percent from the previous trading day while the secondary Kosdaq flopped 2.50 percent.

Won depreciated 0.72 percent against the U.S. dollar to 1,339.7.

BY JIN MIN-JI [jin.minji@joongang.co.kr]