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30 Oct 2023

Econ Digest

FOMC meeting on October 31 – November 1, 2023: The Fed is expected to hold its policy rate steady at 5.25-5.50%, but may keep the door open to further policy rate hikes if inflation picks up again.

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        At the Federal Open Market Committee (FOMC) meeting slated for October 31 - November 1, 2023, the US Federal Reserve (Fed) is set to keep its policy rate unchanged, pending an assessment of the inflation and economic outlook going forward. Although inflation remains above the Fed’s target and the labor market is still relatively strong, looking ahead, the US economy is likely to slow in line with a decline in savings and higher financial costs due to the rapid policy rate hikes in recent months. Moreover, the US economy is facing increased risks from the sluggish global economy amid persistent geopolitical uncertainties.
            
        However, KResearch holds the view that the Fed may keep the door open to further policy rate hikes, as indicated in the interest rate forecasts (Fed Dot Plot) at its previous meeting, if inflation picks up again. Based on the Fed’s previous signals that inflation remains significantly above 2.0% and the US labor market remains robust, KResearch expects that the Fed may further raise the policy rate to a maximum of 5.50-5.75% if US inflation accelerates again amid the risk of volatile oil prices, coupled with the continued domestic demand expansion. Nevertheless, KResearch sees the probability of this scenario as relatively low and gives more weight to the scenario that the Fed may pause its policy rate hikes in this cycle and maintain the rate at 5.25-5.50% until at least the end of this year.
            
        Looking ahead, the Fed is likely to keep interest rates high for longer than expected if future inflation declines only gradually, and if the US labor market does not slow as anticipated. The Fed may consider policy rate cuts in the second half of next year. Nevertheless, the Fed’s policy rate timing will mainly depend on economic and inflation data. Amid uncertainty surrounding US monetary policy, the Baht is likely to remain volatile going forward. If the Fed raises its policy rate more than expected or keeps it unchanged for longer than anticipated, the Baht could face pressure from a strengthening US Dollar.

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