KResearch expects the Federal Reserve (Fed) will raise the policy interest rate by 0.25 percent from 1.75-2.00 percent to 2.00-2.25 percent in its meeting slated for September 25-26, 2018. The Fed will also likely announce an increase in its balance sheet normalization process to the maximum of USD50 billion per month. The US is still pursuing strong economic growth while its inflation is moving consistently with the Fed's inflation target; such factors are supportive to the Fed's continual policy rate hikes. Both the uptrend of the Fed's policy rate and its accelerated balance sheet reduction remain a challenge for the emerging countries, which may face greater fund volatilities.
Intensified trade conflicts may incur greater risk to the US economy, but may not affect the Fed's viewpoint toward its economic growth assessment for this year. The Fed is still expected to raise its policy rate four times in 2018. With regard to the US-China trade dispute, the situation has deteriorated. Most recently, the US announced that it will implement the next round of US tariffs on Chinese products, which is a 10-percent duty on USD200 billion worth of goods from China, effective on September 24, 2018. However, possible impacts of the trade war on the US economy will likely remain limited this year because the new tariffs will not be imposed on certain products that may impact US consumers. Looking ahead, the US's trade deficit will continue to be an issue for careful attention because it is closely related to the intensity of US trade measures. If its trade deficit is aggravated, the US will likely consider releasing additional measures that will certainly impact global trade and, in return, eventually the US' economic growth as well.