Market Update: Kevin Warsh’s nomination strengthens case for extended rate hold in Korea – Full Analysis

 
U.S. President Donald Trump’s choice of Kevin Warsh as his nominee for the next U.S. Federal Reserve chair is reinforcing expectations of an extended interest rate hold in Korea, as policymakers in Seoul assess the risks of moving ahead of a more cautious Fed.
 
Warsh, a former Federal Reserve governor and Wall Street veteran, had emerged as a leading contender alongside Kevin Hassett, the head of the White House National Economic Council. But economists and investors see Warsh as less dovish than Hassett, and more likely to maintain a measured, hawkish posture rather than fully align with the U.S. President’s repeated calls for sharp interest-rate cuts.
 
 
Markets responded swiftly to the nomination. The dollar strengthened and U.S. Treasury yields rose, reflecting expectations that the Fed under Warsh would be less inclined toward rapid monetary easing. On Friday, the dollar index, which measures the currency against six major peers, climbed 0.9 percent to 97.13, reversing part of the dollar’s recent slide. Treasury yields rose across maturities as investors adjusted their outlook for U.S. monetary policy.
 
The shift has implications well beyond the United States. Korean experts wager that a more cautious Fed will reduce pressure on the Bank of Korea (BOK) to cut rates ahead of Washington, reinforcing its inclination to remain on hold.
 

The Bank of Korea building in Jung District, central Seoul, is pictured on Aug. 12, 2025. [YONHAP]

 
The Korean central bank lowered its benchmark rate to 2.5 percent in June last year and has kept it unchanged for five consecutive policy meetings since. In its policy statement on Jan. 15, the BOK’s Monetary Policy Board removed language referring to the “possibility of rate cuts,” a move widely interpreted as a signal that the easing cycle was nearing its end.
 
Domestic factors have also supported the central bank’s restraint. Housing prices in the greater Seoul area have shown renewed signs of instability, household debt concerns have resurfaced and the won remains vulnerable to swings in global capital flows. Although the won has strengthened to the 1,430-per-dollar range, economists warn that renewed dollar strength could trigger foreign outflows and renewed exchange rate volatility.
 
BOK Gov. Rhee Chang-yong has echoed that caution in recent public remarks. Speaking at a global macro conference in Hong Kong on Wednesday, he referred to a “K-shaped recovery” and questioned the effectiveness of monetary policy in addressing uneven growth, saying “many people hold central banks responsible, but I do not think interest rates are an appropriate tool to address such problems.”
 
By “K-shaped recovery,” Rhee was referring to a polarized growth pattern in which some sectors — such as chips — expand rapidly while others lag, creating a gap between headline economic indicators and the uneven recovery experienced by households and businesses.
 
With expectations for U.S. rate cuts becoming more restrained, many analysts now see little urgency for the BOK to shift course.
 
“If Fed independence strengthens and a strong dollar trend resumes, the BOK will have greater justification to maintain a hawkish hold,” said Park Jeong-woo, an economist at Nomura. “The [BOK’s] current stance is likely to be reinforced under these conditions.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM WON [[email protected]]