We at KResearch expect that the FOMC will resolve to keep its policy rate intact at 2.00-2.25 percent at the upcoming meeting slated for September 7-8, 2018 before raising the Fed Funds rate by another 0.25 percent at the final meeting of this year. Factors supporting the path of Fed's monetary policy normalization are the fact that the US economy has been performing well beyond its potential level and the robust US labor market as evidenced by favorable growth in household consumption and personal income despite a number of downsides, such as its trade dispute with China. Even though there has been volatility in financial markets after the long-term US Treasury yields rose, the Fed may continue to raise its policy rate this year. Meanwhile, the US real economic and financial sectors remain solid and they may not be significantly affected by volatility in financial markets while such a swing will likely allow investors to improve their risk assessments, thus helping ease risk of a property bubble. Chances for an inverted yield curve, being the bellwether for an economic recession, will be slimer given the rise in long-term US Treasury yields.
However, the Fed will likely face more challenges in raising its policy rates because the real economic sector may begin to slowdown following steady rate increases. Inflationary pressure that is projected to be relatively subdued may affect the Fed's policy rate hike timing while ensuring steady economic growth during the period of its monetary policy normalization.
Meanwhile, the impact of the Fed Funds rate rise on the Thai economy will likely be limited. This means that the relevant Thai authorities may not need to raise their policy rates at this time because doing so while the currencies of our rival countries have been weakening would significantly strengthen the Baht's value, thus undermining Thailand's export competitiveness amid exacerbating trade dispute between the US and China. Looking ahead, Thailand's policy rate may increase at a slower pace than the Fed Funds rate because liquidity in the Thai financial market is relatively plentiful and capital outflow is at a manageable level.
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