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30 Jan 2017

International Economy

Fed’s First Meeting, 2017: Rate May be Kept on Hold (Business Brief No.3659)

KResearch expects that the US Fed will at its first 2017 meeting likely hold the policy rate steady at 0.50-0.75 percent amid uncertainty about Trump administration economic policies. We, however, believe that the Fed will continue to convey a message to the market that it is still following through with its rate hike plan, especially if the US economy continues to perform at the current level. Meanwhile, inflationary pressure is expected to rise due to an increase in fuel prices and tightening job market.

The US economy may be picking up speed, but politics there is coming to a boil, which might slow any Fed decision on increasing the rate further right now so as to keep a close watch on the new administration's policy changes. This is because US politics is now putting the nation's economic growth at risk, particularly with President Trump's approval of protectionist policies. Recently, he signed an executive order abandoning the formative TPP, not to mention his suggestion to renegotiate the NAFTA and exertion of pressure on American companies to return production facilities to the US. These movements could be averse to the US private sector, resulting in higher costs that might then go on to hurt domestic consumption.

As for Thailand, such external factors will likely trigger more volatility in Thai financial markets. The Fed's signal of maintaining its benchmark rate at the status quo should be considered positive to economic recovery, given that the chance for financial costs to edge higher will be slimmer, and that a partial capital is bound to return. Even so, the above complications could prompt volatility in our financial markets, posing challenges to the Thai economy early in the year. Contingency plans may be needed as a bulwark against adversity.

International Economy