KResearch projects that the Federal Reserve (Fed) will keep the US policy rate within the range of 0.00-0.25 percent, without announcing any additional monetary easing tools, at the upcoming Federal Open Market Committee (FOMC) meeting to be held on January 26-27, 2021. While the Fed is expected to signal further easing of monetary policy, it will still emphasize the necessity of expediting issuance of fiscal measures under the new US government headed by President Joe Biden. Both monetary and fiscal measures will be instrumental towards limiting risks and supporting the recovery of the US economy over the upcoming period.
Nonetheless, the impacts of the rising US government bond yields have prompted KResearch to conclude that the Fed may commit to buying long-term bonds as a way of limiting the rise in financial costs among households and businesses, which could in turn affect the US economic recovery.
With regard to future trends, KResearch notes two key variables that influence the US economy and could, in turn, determine the Fed's course of actions, namely 1) the US government's ability to keep the pandemic under control and its progress in providing COVID-19 vaccinations; and, 2) the agility and success of President Joe Biden's government in pushing for relief measures and stimulus packages through the US Congress.
The Fed's signal towards monetary policy relaxation should not have any direct impact on the decisions of Thailand's Monetary Policy Committee (MPC). However, this could affect the trend of the Baht's value and Thai government bond yields which may inch upward in line with US government bond yields, another factor that is worth monitoring in addition to the rising volume of Thai government bonds to be issued in 2021. While the Baht tends to appreciate against the US Dollar, its movement could become even more volatile as the US Dollar as a safe haven currency may be periodically supported amid growing risks in the US.
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