Fed to Mull Markets before Next Rate Increase (Business Brief No.3637)

KResearch expects that the US Fed, during their 6th Federal Open Market Committee (FOMC) meeting on September 20-21, 2016, will maintain their key policy rate at 0.25-0.50 percent. This is to ensure that markets and the US economy are calm enough and ready for a Fed Funds rate hike, albeit some Fed officials have been implying the need for such assurance in their statements since the 2016 Economic Symposium at Jackson Hole, Wyoming.

In addition, the US economic trend has been uneven, with markets increasingly concerned about confusing signals as to when the Fed will raise the key rate. However, inflationary pressure remains low. KResearch, therefore, views that the Fed may wait to evaluate how markets react to Fed policy statements and US economic data for a while longer before considering an increase in the key rate, which could occur later this year.

Implications for Thailand: KResearch believes that another delay in a Fed Funds rate hike at the upcoming FOMC meeting may encourage more short-term capital flows into our markets. However, there is a possibility of volatility around the time if and when the Fed signals a rate hike at either of the two final meetings of this year. We estimate that since the Fed may ease into any signal towards a rate hike, it may be conducive for Thailand to maintain the current accommodative monetary policy stance for a while longer, thus the Bank of Thailand may be able to keep its key policy rate at 1.50 percent throughout the rest of this year.