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29 Apr 2019

International Economy

Expected slowing US economy amid weaker-than-target inflation may signal a halt in Fed interest rate increase (Business Brief No.3799)

      KResearch expects the Federal Reserve to maintain the policy rate at 2.25-2.50 percent during the Federal Open Market Committee meeting on April 30-May 1, 2019.  The Fed's hint at easing monetary policy will sustain the US economic growth in the remainder of this year. During 2Q19 and 3Q19, the US economy will continue to encounter risk factors which may drag the economic momentum, prompting the Fed to keep the policy rate unchanged to support the continuous expansion of the US economy at least until the end of this year. Nonetheless, the Fed also suggested that it would closely monitor the US economic health and employ the data dependent approach.  Although the market thinks it is possible for the Fed to consider cutting the policy rate by 0.25 percentage points before the end of 2019, the Fed is unlikely to signal the rate cut in the near future. This is because the interest rate reduction may be interpreted by the market as the US economy is entering the cycle of economic slowdown in the future.

     Regarding the impact on Thailand, as the market has somewhat priced in the Fed's interest rate signal, the decision is unlikely to significantly strengthen the value of the US dollar.   Hence, the current movement of Thai Baht depends on domestic factors especially the development of the political situations at home. Meanwhile, the Fed's monetary policy shift should have positive impact on monetary policy implementation of other central banks including the Bank of Thailand. The US monetary policy guidance should give other central banks more flexibility to adjust their monetary policy in accordance with economic development in each respective country.

International Economy