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14 Dec 2023

Econ Digest

The Fed held its policy rates unchanged at 5.25-5.50% as expected, and signaled three rate cuts next year, up from the previous estimate.


        The US Federal Reserve (Fed) held its policy rate unchanged at 5.25-5.50% as expected at the Federal Open Market Committee (FOMC) meeting on December 12-13, 2023. The Fed’s interest rate forecast (Fed Dot Plot) showed no support for another rate hike and three rate cuts coming in 2024, compared to the previous projection of two rate cuts. As a result, the US policy rate is expected to stay at 4.6% at the end of 2024, down from 5.1% in the previous projection. In addition, the Fed deems that the US economy is headed for a soft landing. The US economy is likely to slow down next year but probably will not enter a recession.

        Although the Fed’s statement has become less aggressive, the Fed remains cautious and does not rule out further rate increases if inflation risks escalate. However, most market participants expect more rate cuts than the Fed is signaling. Based on data from the CME FedWatch Tool as of December 14, 2023, there will be 6 rate cuts next year to 3.75-4.00%.

        KResearch expects the Fed will remain cautious and may not cut rates next year to the extent the market expects, as the Fed would like to see improved inflation and employment figures to ensure that the inflation rate will return to and remain within the target.

        Following the results of the FOMC meeting, the US government bond yields dropped, the US dollar weakened, and the Baht reversed to strengthen at THB35.10/USD from THB35.70/USD in line with other Asian currencies. However, the Baht is still facing fluctuations due to the uncertainty surrounding the timing and scale of the US interest rate cuts. 

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Econ Digest