The U.S. Central Bank, the Federal Reserve (Fed), on the 10th (local time) cut the benchmark interest rate by 0.25 percentage points to 3.50%–3.75% annually. As markets had expected a rate cut and Chair Jerome Powell refrained from a "hawkish" stance at a press conference after the decision, U.S. stocks rose.
The Fed said it decided to cut rates because "we judge that downside risks on the employment side have increased in recent months." The Fed has cut rates three times in a row since September. The gap between Korea's benchmark rate (2.5% annually) and the U.S. rate narrowed to 1.25 percentage points (based on the upper bound).
It is uncertain whether the Fed will deliver additional rate cuts next year and by how much, but the Fed appears to have tried to strike a relatively cautious tone. In the statement released with the decision, the Fed said it will decide future rates by considering "the extent and timing of additional adjustments to the target range for the federal funds rate." Powell said this means "we will assess carefully."
Economists said the remarks mean the direction of monetary policy will not be changed abruptly—dismissing the possibility of a rate hike. They said the uncertainty of monetary policy has been significantly reduced.
The dot plot, which shows the future rate path projected by the 19 Fed Commissioners, suggests there is a strong chance of one more rate cut by the end of next year. It is also notable that the Fed projected the U.S. economy will enter a "Goldilocks" phase. Powell said, "Absent new tariffs, goods inflation will peak in the first quarter next year," and he projected the labor market will not deteriorate significantly.
Alongside the rate cut, the Fed's decision to start its short-term Government Bonds purchase program early is also positive. The Fed said starting on the 12th it will conduct short-term Government Bonds purchases until reserves are ample. It will buy $40 billion immediately and announce the purchase size each month.
Park Sang-hyeon, a researcher at iM Securities, said, "While not a full-scale quantitative easing policy, it will likely be highly effective in easing strains in the short-term funding market, and at the same time it is expected to strengthen expectations for increased liquidity in financial markets and exert weakening pressure on the dollar," adding, "It is a decision that can sufficiently offset markets' concerns about rate policy."