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14 Sep 2020

International Economy

Fed set to keep interest rates in a range of 0-0.25% at FOMC meeting Sep. 15-16, having passed a resolution to adjust long-term inflation in the previous month (Business Brief No.3884)


           ​   KResearch has assessed that the Federal Reserve (Fed) will continue to keep interest rates in a range of 0.0-0.25 percent at the next Federal Open Market Committee (FOMC) meeting which will be held on September 15-16, as the Fed is thought to have already used all the tools necessary to sustain the US economy. Recently, the Fed adjusted its policy rate downward to near zero percent and continuously implemented Quantitative Easing (QE). Only late last month, the Fed reached a unanimous resolution in approving the adjustment of its monetary policy strategy and long-term goals, shifting to average inflation targeting instead of fixed inflation targeting. The Fed cited that, as the US economy recovers and the unemployment rate starts to fall once more, the Fed will be in no hurry to raise interest rates in order to maintain the inflation at a targeted 2 percent.. While such policy may not prove directly effective as a short-term economic stimulus, it still signals the continuation of a relaxed monetary policy which will help to encourage US economic growth in the long run.

              Although the US economy remains vulnerable to risks, the Fed is unlikely to consider exercising yield curve control anytime soon. Meanwhile, a negative interest rate policy is also an unlikely choice for the Fed in dealing with the current situation, since such a policy could cause financial market volatility. Moreover, the Fed will likely focus on keeping interest rates at near-zero levels and pursuing its QE program continuously, in line with existing fiscal policies to support the US economy during this crisis.

                 Regarding the impacts on Thailand, the monetary policy of the Fed and other central banks will generate a ripple effect that causes fluctuation in the value of the US dollar. Other factors that may need to be monitored include a potential resurgence of COVID-19 (especially as winter approaches), political issues in the US, geopolitical conflicts, and uncertainties surrounding the Brexit deal. Furthermore, close attention should be paid to the state of the Thai economy and any events that could influence the value of the Baht. Amid this risk-prone environment, the Baht's value may continue to experience high volatility, which would affect Thailand's export sector and could create new challenges for the Thai government's monetary policy implementation, going forward.

International Economy