As expected, the Federal Open Market Committee (FOMC) at the October 27-28 meeting resolved to keep its Fed Funds rate steady at 0.00-0.25 percent and continue reinvesting principal payments from its holdings of maturing debt securities to maintain accommodative financial conditions going forward.
However, we at KResearch observe that the Fed's accompanying post-meeting statement differed substantially from previous meeting statements. The Fed deleted any overt concern towards global economic and financial turmoil and put forth the possibility of an interest rate hike at its final meeting of this year, instead. This, therefore, suggests that the Fed is paving the way for the first post-recession policy rate hike at the December 15-16 meeting.
Although the Fed decides to wait unit it sees substantial recoveries in the US labor market and overall economy, including developments within the global economy and financial markets over the next one and a half months, there is a high likelihood that it will raise the Fed Funds rate within this year. Given this, we expect that the Baht may weaken and test THB36.00/USD again, while the Thai government bond yield may trend lower amid rising volatility foreseen in capital movements.