All eyes on Fed meeting this week

Fed Chairman Jerome Powell speaks during a conference at the Federal Reserve Bank of Chicago, June 4, 2019. AFP-Yonhap

By Park Hyong-ki

This week, the U.S. Federal Open Market Committee (FOMC) will hold a monetary policy meeting that could either deal a blow to or restore confidence in the global economy.

Analysts say investors will be watching the meeting led by Fed Chairman Jerome Powell from June 18 to 19. This is because the chairman recently signaled monetary easing to prevent a further economic slowdown amid the U.S.-China trade war.

A consensus has been formed that the FOMC members will vote to freeze the federal funds rate at 2.25 percent to 2.5 percent.

But it is expected to set the tone on what action it will take in the latter half for the rest of the world, including Korea, the analysts noted.

“The June meeting will be a turning point for the global economy,” said Lee Sang-jae, an analyst at Eugene Investment & Securities.

The meeting will also pave the way for the Fed to cut its interest rate by a quarter point in July, after the G20 summit in Osaka, Japan, later this month.

Analysts say investors will also be paying close attention to the G20 summit to see whether the U.S. and China will reach a “trade deal,” which could set either a positive or negative tone for the world economy.

Following these two events in June, the Ministry of Economy and Finance and the Bank of Korea are expected to pursue a policy mix to counter low growth, according to the analysts.

The ministry will likely be unveiling its economic policy for the latter half possibly with a lowered growth projection for this year, ahead of the BOK's July 18 meeting.

BOK Governor Lee Ju-yeol has recently signaled a rate cut, changing his previous stance.

He said at the central bank's 69th anniversary June 12 that the BOK will appropriately counter changes in the world economy through its monetary policy.

Four days later, Finance Minister Hong Nam-ki said the policymakers will have to carry out “special countermeasures” in the latter half.

This means a local rate cut could happen on Aug. 30 following the Fed's July 30 policy meeting and the finance ministry's economic plans for the second half, analysts say.

“The discussion over a possible rate cut has already started given the low growth and inflation outlooks,” said Oh Chang-sob, an analyst at Korea Investment & Securities.

Lee had been adamant that the bank's monetary policy was already accommodative, which did not warrant a cut as suggested by the International Monetary Fund (IMF).

In May, the central bank kept the rate unchanged at 1.75 percent to maintain financial stability.