KResearch expects that the US Federal Open Market Committee (FOCM) will likely resolve to keep its policy rate unchanged pending an economic assessment while also unveiling its new economic growth and interest rate forecasts at the final meeting of 2019. We expect that the Fed may maintain its 2020 US economic growth forecast at approximately 1.8-2.1 percent, which would be at the same par as it did during the previous meeting and slightly lower than the figure projected for 2019. A significant change may not be seen in the Fed Funds rate for 2020. This means that the US policy rate may remain static over the next 1-3 months. The US economic data to be released in early 2020 will likely reflect whether the overall US economic performance is in unison with the forecast or not. This factor will likely dictate the Fed's monetary policy stance, going forward.
Amid risks to the US economy and uncertainties surrounding the trade war, financial markets view that the Fed may cut its policy rates further in 2020.
- The US economy will continue to experience heightened risks in 2020. The anemic global economy and uncertainties surrounding the trade war will continue to pressure the US business sector, in particular the manufacturing sector that has begun to see a decline in purchase orders. The prolonged US-China trade rift may further hurt investment in the US business sector and in turn threaten the labor market, while the expired income tax cut and rising domestic product prices resulting for the US protectionism represent risks to private consumption. Such factors may cause the US economy to grow at less than its potential level.
- Risk from the US-China trade dispute will likely dictate the US monetary policy stance in 2020, in particular if the US cannot reach a trade deal with China, thus leading to the imposition of a new round of tariffs on Chinese imports on December 15, 2019. The tariffs will largely cover consumer products, with such finished products being subject to higher tariffs. Since this downside risk may further pressure the US consumption, being a key economic driver, it is highly likely that the Fed may consider easing its monetary policy further.
The likelihood that Fed will cut its policy rate further in 2020 amid heightened risks to the US economy may cause the US Dollar to weaken and in turn exert upward pressure on the Thai Baht.