Display mode (Doesn't show in master page preview)

9 Dec 2016

International Economy

Final Fed Meeting on Dec. 13-14, 2016: The Fed Rate Rose (Business Brief No.3649)

In 2016, the US Fed pegged the key policy rate at 0.25-0.50 percent throughout seven meetings and many times seemed to disavow the possibility of an increase given Dot Plot data, amid rising risk in global economic fragility due to concern towards an economic slowdown in China, the Brexit and situations at European banks. Nonetheless, it is notable that the US has been able to maintain its recovery momentum, especially the job market that has rebounded to nearly match normal levels. This success will likely be the main factor that the Fed is now proceeding with gradual increases in the Fed Funds rate (to avoid pressure to accelerate later, which could then only hurt the economy).

KResearch expects that the Fed will resolve to increase the key interest rate at the last meeting of 2016 by 0.25 percent to 0.50-0.75 percent, from 0.25-0.50 percent. It is also possible that the Fed may hike that rate once or twice again in 2017, since inflation may hasten upward. The US economy may also be boosted by president-elect Donald Trump, who is thought will author numerous economic stimuli as promised during his election campaign. However, the timing of the next Fed Funds rate hike is still unclear because of foreign economic risks that may escalate to a degree that the Fed may not be able to send obvious signals of stringent rate control.

Implications on Thailand: The Fed will likely increase interest rates again in 2017, and that may cause capital outflows from emerging markets (including Thailand); in addition, the global economy may of course face a variety of risks next year. Given this, KResearch assesses that the Fed will remain cautious towards further rate hikes. Our economy is sound, especially given strong external stability and high domestic liquidity, which will help buffer any impact from volatility due to outbound fund flows and THB depreciation every time the market becomes anxious because a Fed rate hike may be looming.

International Economy