We, at KResearch, asssess that the Fed will continue to maintain its policy rate within a range of 0.0-0.25 percent, and may not announce its QE tapering program at the upcoming Federal Open Market Committee (FOMC) meeting, slated for September 21-22, 2021. The US central bank may also keep its view on QE tapering unchanged as markets have alrady priced in that the program will begin towards the 2021 year-end. At the upcoming FOMC meeting, the Fed is expected to send signals via its statement that it has a cautious view towards the US economic recovery after several economic indicators have perfomed well below its prior estimates amid the COVID-19 pandemic and supply chain bottlenecks that continue to pressue the US economic recovery. However, it is expected that the Fed is still upbeat about the overall US economic performance due to its steady recovery momentum that will likely meet the Fed's set target. The Fed's statement will place emphasis on pointing out to markets that it will begin cutting back on its bond-buying program at the 2021 year-end as the cut back has already been priced in by markets. The Fed's statement will be tailored to avoid market jitters and maintain the Fed's trustworthiness. The Fed is expected to announce its QE tapering plan at the next FOMC meeting scheduled for November, and begin the program in December.
Meanwhile, close attention must be paid to the Fed's forecasts on the US economy, inflation and Fed Dot Plot, which will likely be disclosed at the upcoming FOMC meeting as such data will determine the Fed's future monetary policy stance. KResearch expects that the Fed will likely revise upward its inflation forecast amid increased inflationaly pressure, and the revision to its interest rate forecast may be made earlier than the latest one in June 2021. The US central bank is expeced to raise its policy rate in 2023. Neverthless, it will have to weigh future economic and inflation risks, and be careful in communiations by avoiding sending signals on withdrawing its accomodative monetary policy too soon. This is to prevent volatility in financial markets.
As for the impact on Thailand, the Fed's announcement on QE tapering may cause the US Treasury yields and greenback to rise, which will in turn drive up the Thai government bond yields, and domestic borrowing costs when the Thai economy is set to bounce back at a slower rate than that of the global economy, including the US, amid increased risks of the protracted COVID-19 pandemic. If the Fed does not announce the QE tapering program, there will likely be uncertainties in financial markets, and steady volatilities will be seen in forex rates.