“Increase in Economic Outlook Uncertainty”
US-Korea Interest Rate Gap Maintained at 1.75%p
The US Federal Reserve (Fed) concluded its two-day Federal Open Market Committee (FOMC) meeting on the 19th (local time) and decided to keep the interest rate steady at 4.25~4.50%. This marks the second consecutive monetary policy meeting this year where the rates have remained unchanged, following three consecutive cuts between September and December last year. As a result, the interest rate gap with Korea (2.75%) remains at 1.75 percentage points at the upper bound.
The Fed underscored the “increasing uncertainty in the economic outlook” as the reason for holding rates, citing concerns over a potential recession, slowed inflation decline, and escalating uncertainty due to the Trump administration’s ‘tariff war.’
According to the economic projection summary (SEP) released the same day, the Fed maintained the median interest rate outlook for the end of this year at 3.9%, the same as in December last year. This suggests the possibility of two rate cuts of 0.25 percentage points each within the year. Out of 19 FOMC members, 11 anticipated at least two rate cuts this year.
The Fed revised down its forecast for this year’s US GDP growth rate from 2.1% estimated in December to 1.7%, and marginally adjusted the year-end unemployment rate forecast upwards from 4.3% to 4.4%.
The personal consumption expenditure (PCE) inflation rate forecast was adjusted upward from 2.5% to 2.7%, and the core PCE inflation rate, which excludes the volatile food and energy sectors, was also revised from 2.5% to 2.8%. This adjustment reflects the impact of the Trump administration’s tariff increase policies.
In a statement, the Fed declared its commitment “to support maximum employment over the long term and return inflation to the 2% target.” However, the phrase “balance of strong employment and stable inflation” was removed from the previous statement, revealing a cautious stance on economic forecasts.
CNBC predicted, “Before the long-term stabilization of the base interest rate around 3%, it will be cut twice in 2026 and once more in 2027,” indicating the potential for further rate reductions.
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