[비즈한국] This week is expected to be a critical turning point that determines the direction of global monetary policy. Starting with the US Federal Open Market Committee (FOMC) meeting held over two days on the 28th and 29th (local time), the Bank of Korea's (BOK) Monetary Policy Committee, presided over by new Governor Shin Hyun-song, awaits exactly one month later on May 28th. The market is currently almost certain that the Federal Reserve will freeze the benchmark interest rate at its current 3.50–3.75% level, and the atmosphere suggests that any rate cut will be pushed to next year or later. The Bank of Korea is also maintaining a wait-and-see approach, keeping its base rate pegged at 2.5%. However, the underlying intentions of the two central banks, hidden behind the superficial result of a freeze, are completely different.
The U.S. freeze is closer to a 'forced pause'—they want to cut rates but cannot. This is because prolonged geopolitical conflicts in the Middle East are fueling energy price hikes, which in turn are stimulating core inflation. Furthermore, political uncertainty surrounding the tenure of Chairman Jerome Powell is seeping into the market fog. The recent move by the U.S. Department of Justice to conclude its criminal investigation into Chairman Powell and transfer the matter to an inspector general is a judicial wrap-up on the surface, but in reality, it is a political signal accelerating the emergence of Kevin Warsh, who has been nominated as his successor. It marks the dawn of an era of 'political interest rates,' where the independence of monetary policy is shaken and political pressure becomes a constant. How the monetary policy will take shape under the Warsh regime is a key variable for the market in the second half of the year.
The problem is Korea. Until now, the market has vaguely assumed that the Bank of Korea was toying with an 'additional rate cut card.' However, ahead of the May Monetary Policy Committee meeting, this premise is wavering. At his confirmation hearing on the 15th, new Governor Shin Hyun-song explicitly kept open the possibility of a rate hike, stating, "The core of monetary policy is price stability, and if the impact of Middle East risks spills over into core inflation or inflation expectations, causing a secondary ripple effect, it is at a stage where monetary policy must be utilized." While he characterized the seven consecutive freezes as 'strategic patience,' he clearly hinted at the possibility of a monetary policy pivot depending on future inflation trends.
This signal is the exact opposite of the rate-cut scenario the market has been expecting all along. Indicators also support the pressure for a hike. The consumer price index in March was 2.2%, up slightly from February. Some analyses suggest that if a maximum gasoline price system had not been in place, the inflation rate could have reached 2.6–3.0%. At the same time, household debt has reached 88.6% of GDP, crossing the threshold that Governor Shin pointed out as a "level that suppresses growth." Ultimately, the May Monetary Policy Committee meeting is likely to be the most uncertain meeting yet, not a venue for a long-awaited rate cut signal, but one where both cuts and hikes are on the table.
With the 100bp Korea-U.S. interest rate gap unlikely to narrow in the near term, the downward rigidity of the exchange rate continues, and at the same time, the Bank of Korea is preparing to shift its tone from rate cuts to a wait-and-see approach or hikes. Consequently, investors must build a structure that can respond to two-way risks instead of betting on a single scenario.
First, consider deposits. While there is a high possibility that the base rate will be maintained at 2.5% for the time being, now that even a rate hike scenario is on the table, locking up a large portion of funds in long-term deposits of three years or more could increase opportunity costs. If Governor Shin strongly reveals a hawkish tone, there is a possibility that higher-interest deposit products could appear before long. A 1-year revolving management strategy is the safest bet.
The same applies to bonds. The formula 'bond prices rise when interest rates are cut' only works if a cut actually happens. It is reasonable to hold off on increasing bond allocations until we confirm Governor Shin's first message. In a phase where the possibility of a rate hike is highlighted, conservative management with shorter durations, focusing on short-term government bonds, is recommended.
For dollar assets, abandon impatience and respond with incremental purchases. At a time when exchange rate volatility is at its peak, a lump-sum exchange is courting risk. Wisdom is needed to lower the average purchase price through a recurring investment strategy of exchanging a fixed amount into dollars every month.
In the domestic stock market, the stock selection strategy needs to be reorganized. Stocks that have heavily factored in rate cuts could face an immediate correction if a hawkish tone emerges in Governor Shin's first message. Instead, large-cap semiconductor stocks and blue-chip exporters that led the first-quarter GDP growth are more stable. Keeping a certain level of cash on hand is also essential. The volatility that the two monetary policy meetings will trigger may be a source of fear for some, but for prepared investors, it is capital as an opportunity to buy high-quality assets at a bargain.
The FOMC results for this week will be announced on the early morning of April 30th (Korea time). There is a high possibility that exchange rates and bond yields will fluctuate immediately after the announcement. However, the real test is a month later on May 28th. Depending on the tone of the message Governor Shin delivers at his first meeting, the outline of the asset market for the second half of the year will change completely. The most dangerous attitude is to concentrate assets on one scenario, whether it be a cut or a hike. It is necessary to view the two meetings as a single, continuous flow and slowly shift the center of gravity of your assets in between. What investors need during this period of monetary policy transition is not predictive power, but a structure prepared for both directions. It is about moving away from the obsession with guessing the right answer and instead building a portfolio that will not collapse regardless of the outcome. We must not forget that the more noisy the market, the more the person who quietly diversifies their assets eventually becomes the final winner.