KResearch expects that the Federal
Reserve (Fed) will maintain its policy rate at 0.0-0.25% at its meeting during
September 15-16, 2020, as the Fed has adopted various necessary tools to
sustain the US economy, including cutting interest rates to near zero along
with continuing its quantitative easing (QE) policy. Most recently, the Fed has
unanimously approved a shift to average inflation targeting policy to increase
the flexibility of monetary policy. This was so that the Fed will not have to
rush to raise interest rates to keep inflation at a 2% target, which is a forward
guidance measure to adjust market forecasting to meet the Fed’s needs. The Fed
tends to keep interest rates low for a longer period of time, although this may
not be directly effective in stimulating the economy in short term. Rather, it
is a signal that the Fed will continue easing monetary policy to support
long-term economic growth in the US. It is expected that the Fed will not
signal a worsening economic outlook, in order to build confidence prior to the
US presidential election held in November 2020.
The latest US economic figures
indicate that the US economy began to lose momentum in its recovery, as new
orders and production grew at a slower pace in August, while many companies
have moved from temporary layoffs to permanent job cuts amidst weak demand.
However, the Fed is not yet likely to adopt a yield curve control, while the
negative interest rate policy is not an option that will be chosen by the Fed under
the current situation, as such policy may cause volatility in the financial
markets. In addition, the Fed may continue to focus on maintaining interest
rates near zero and continue quantitative easing in coordination with the
fiscal policy to sustain the US economy to get through this crisis.
impact of the monetary policies of the Fed and other major central banks on
Thailand may be transmitted through the movement of the US dollar. Therefore,
other factors that will affect the direction of currency must be monitored,
such as the second wave of the COVID-19 pandemic, especially prior winter
season, US political issues, geopolitical conflicts and the uncertainty of
Brexit issues. Meanwhile, it is also necessary to monitor Thailand’s economic
conditions and political situation, which may affect the direction of the baht
amid the continually highly volatile risks. This will affect Thai exports and
the implementation of Thai monetary policy in the future.
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