The Fed is expected to maintain its policy rate within a range of 0.0-0.25%, and may not announce its QE tapering program at the upcoming Federal Open Market Committee meeting on September 21-22, 2021. In this case, there will be no change from what the market has already anticipated: that the Fed will start QE tapering at the end of 2021. The Fed is expected to signal caution on US economic recovery in its post-meeting statement after several previous economic indicators came in below expectations, as the COVID-19 pandemic continues to spread, and as supply chain bottlenecks continue to pressure US economic recovery. However, the Fed is expected to be confident that the overall US economy will tend to recover steadily and make progress in achieving the Fed’s goal. The Fed’s statement will continue to reiterate the market’s expectations that the Fed will begin cutting the QE scale at the end of this year.
Close attention must be paid to forecasts on the US economy, inflation and the Fed Dot Plot to be disclosed at this meeting, which will be indicators of the Fed’s future monetary policy stance. KResearch expects that the Fed will likely raise its inflation forecast, and predictions for its rate hike may be made earlier than the previous June 2021 predictions. Moreover, it is expected that the Fed will raise its policy rate in 2023. Nevertheless, the Fed will probably have to weigh future economic and inflation risks, and communicate prudently to avoid signaling an early exit from accommodative monetary policy too soon to prevent volatility in financial markets.
As for the impact on Thailand, if the Fed announces QE tapering, it will put the US Treasury yields and the US Dollar into an uptrend, causing Thai government bond yields and borrowing costs to rise; meanwhile, the Thai economy is set to recover more slowly than the global economy, and the risk of the protracted COVID-19 pandemic will cause the Thai Baht to tend to depreciate. If the Fed does not announce QE tapering, it will cause uncertainties in financial markets, and exchange rates may continue to fluctuate.
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