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13 Sep 2024

Econ Digest

FOMC meeting, September 17-18, 2024: Fed is expected to cut its policy rate by 0.25% and signal two more rate cuts during the remainder of 2024

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       At the upcoming FOMC meeting on September 17-18, 2024, it is anticipated that the Fed will cut the policy interest rate by 0.25% to a range of 5.00-5.25%. This follows signals from Fed Chair Jerome Powell during the Jackson Hole Economic Symposium that it is time to reduce rates, as inflation is trending towards the Fed’s target of 2.0%. In August, US headline inflation fell to 2.5% YoY, the lowest level since February 2021 and slightly below the market expectation of 2.6% YoY. Plus, the US labor market shows signs of weakening, non-farm payrolls expanded slightly less than expected at 142,000, while the unemployment rate dropped to 4.2%.

       KResearch views that the Fed may signal further interest rate cuts through the Dot Plot, with an additional two reductions of 0.25% each at the remaining meetings in November and December 2024. As a result, the Fed Funds rate is expected to decline to a range of 4.50-4.75% by the end of 2024. The US economy is likely to slow down and achieve a 'soft landing' rather than enter a recession, while inflation is likely to gradually decline toward the target level, despite the latest core inflation rate in August 2024 accelerating from the previous month. KResearch therefore believes that the Fed does not yet need to implement rapid and sharp cuts of 0.50% at the remaining meetings this year.

       However, markets largely expect the Fed to make a more aggressive cut of 0.50% at either the November or December meeting. According to Fed Funds Futures from the CME FedWatch Tool, as of September 12, 2024, most markets see the policy rate to fall to around 4.25-4.50% or 4.00-4.25% by the end of 2024.

       Meanwhile, the US dollar has weakened sharply over the past 1-2 months as markets anticipate the Fed’s interest rate cuts, leading the Thai Baht to strengthen against the US dollar by more than 5.0% since early July 2024. Looking ahead, both the US dollar and Thai Baht are expected to remain volatile in line with economic figures, including inflation.

       The latest economic and inflation forecasts will be released at the FOMC meeting this September. KResearch expects that the Fed may lower its forecast for the US economy for 2024 from the previous estimates. The US economy is expected to grow around 2.4% this year, with Q4 2024 growth potentially falling below the 2.1%YoY forecast made by the Fed in June. This slowdown is expected to be pressured by slower consumer spending while the US presidential election may cause uncertainties for the economic outlook going forward.

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