U.S. 1st Quarter Negative Growth Deepens Fed's Concerns...Bank Of Korea Also Faces Pressure To Cut Rates

The Growing Concerns Between Growth and Prices at the Us Federal Reserve (Source: The Economist)

The Us Economic Growth Rate Regressed to -0.3% in the First Quarter of This Year, Analyzing Potential Changes in the Federal Reserve's (Fed) Interest Rate Policy Ahead of the Federal Open Market Committee (FOMC) Meeting on the 6th and 7th. Accordingly, There is a Growing Outlook That the Bank of Korea Might also Move Closer to Lowering the Base Rate at the Monetary Policy Committee at the End of May.

The First Quarter Growth Rate of the Us Was Significantly Below the Market Estimate of 0.2%, and the Personal Consumption Expenditure (PCE) Price Index Rose by 3.6% Over the Previous Quarter, Indicating Continued Inflationary Pressure. The Fed Has Held the Key Rate Steady at 4.25~4.5% This Year, and the Interest Rate Futures Market Had Seen a 96% Likelihood of a Hold at the May FOMC. However, the Unanticipated Recession Has Kindled Discussions on Interest Rate Cuts.

In His April Speech, Jerome Powell, Chair of the Fed, Mentioned That “President Donald Trump's High Tariff Policies Could Simultaneously Cause Price Rises and Growth Slowdown,” Indicating That the Fed May Face a Forced Choice Between Growth and Prices. In Addition, Scott Besant, the Us Treasury Secretary, Highlighted the Need for Cuts, Citing the 2-Year Treasury Yield Being Lower Than the Base Rate. President Trump Has Consistently Voiced His Discontent Toward the Fed's High-Interest Stance.

This Trend May Directly Influence the Decision of the Bank of Korea. Traditionally, the Bank Has Aligned with Us Rate Adjustments, Adapting to External Economic Slowdowns and Export Uncertainties. Notably, the Bank Made an Uncharacteristically Pessimistic Diagnosis, Hinting at a Slight Negative Growth Outlook for the First Quarter Last Month. This Is Interpreted as a Preliminary Measure to Justify a Cut Ahead of the May Economic Forecast and Rate Decision.

Chang Yong Lee, Governor of the Bank of Korea, Also Stated the Need to Keep the Possibility of Lowering the Base Rate Below 2.75%, Acknowledging That the May Cut Could Be More Strongly Perceived in the Market. Political Instability Surrounding the Korean Economy, Major Wildfires, and the Us Tariff War also Contribute to Justifying a Base Rate Reduction.

However, in Wall Street, There’s a Perspective That the Fed Might Maintain the Rate, Viewing That It Does Not Need to Bear Political Burdens. Despite the Ongoing Inflationary Pressure from Tariffs, There's a View That It Would Be Burdensome for the Fed to Proactively Cut Rates on Behalf of the Trump Administration.

Youmee Kim, a Researcher at Kiwoom Securities, Stated, “Although Trade Negotiation Hopes Have Slightly Eased Tariff Uncertainty, It’s Not Fully Resolved,” Adding, “The Rate Is Expected to Be Held Steady in This Meeting, but the Fed Might Send Dovish Signals.” Haeyoung Woo, a Researcher at LS Securities, Likewise Pointed Out, “Hints on the June Reduction Potential Are More Important Than the Policy Decision Itself.”

As the Fed's Concerns Deepen, There Is Gaining Consensus That the Monetary Policy Meetings in May and June Could Be a Significant Turning Point in Global Interest Rate Trends.