Fed Holds Rates, Bank of Korea Says Market Uncertainty Rises

Illustration of US monetary policy amid market pressure. The Bank of Korea assessed that the Fed's decision to hold interest rates increased market uncertainty. Illustration made by AI.

JAKARTA - The decision of The Federal Reserve or The Fed to maintain the benchmark interest rate makes the direction of the United States monetary policy more uncertain. The Bank of Korea or BOK assesses that the market is still overshadowed by new tensions in the Middle East.

Yonhap quoted Thursday, July 30, reported that the US central bank maintained its benchmark interest rate in the range of 3.5-3.75 percent. This is the fifth consecutive meeting without a change in interest rates.

The benchmark interest rate is a benchmark for borrowing costs in the market. The Fed's decision is usually of concern to investors because it affects the direction of global financial markets.

This time the decision was not unanimous. Three Fed governors disagreed and voted in favor of a rate hike. The vote split made the market read the Fed's policy direction ahead as unclear.

Fed Chairman Kevin Warsh reiterated the U.S. central bank's commitment to its 2 percent inflation target.

"Let me reiterate that there is no soft inflation target," Warsh said.

Inflation is an increase in the price of goods and services in a certain period. For the central bank, too high inflation is a reason to keep monetary policy tight.

Deputy Governor of the BOK Park Jong-woo said Warsh did confirm his commitment to price stability. However, he did not give clear indications about the direction of the Fed's next monetary policy.

"Fed Chairman Warsh reiterated his commitment to price stability, but did not provide clear guidance on the direction of monetary policy going forward," Park said at a meeting to monitor market conditions in Seoul after the Fed's decision.

According to Park, the financial market assesses the uncertainty of the Fed's monetary policy and the prospect of rising inflation. This condition has pushed long-term interest rates to rise sharply.

"As a result, financial markets assess the uncertainty surrounding the Fed's future monetary policy and the inflation outlook has increased, thereby pushing long-term interest rates sharply higher," he said.

BOK stated that it would continue to monitor domestic and foreign risk factors. The South Korean central bank will also assess its impact on the country's financial and economic markets.

Yonhap said investor anxiety was rising due to concerns over excessive investment in artificial intelligence or AI and new military tensions in the Middle East.

For BOK, the combination of the Fed's decision, the inflation outlook, concerns about AI investment, and Middle East tensions makes it necessary to continue to monitor the financial market.