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19 Dec 2024

Econ Digest

FOMC meeting, December 17-18, 2024: Fed cut the policy rate by 0.25% as expected, and plans to cut the rate twice in 2025

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FOMC meeting, December 17-18, 2024: Fed cut the policy rate by 0.25% as expected, and plans to cut the rate twice in 2025.  

        During the FOMC meeting held on December 17-18, 2024, the US Federal Reserve (Fed) decided, with a majority vote of 11 to 1, to cut the policy interest rate by 0.25%,  from 4.50-4.75% to 4.25-4.50%, as anticipated by the market. This marked the third consecutive reduction after a 0.50% cut in September and a 0.25% cut in November. The cuts are aimed at achieving the long-term targets of maximum employment and 2% inflation amid an easing labor market. However, the unemployment rate remains relatively low. Inflation has declined, but the rate is still above the Fed’s target and the economic outlook has become uncertain.

        However, the Fed signaled plans to lower the policy rate only twice in 2025, fewer than the previous projection of four rate cuts, amid concerns that the inflation risk may not subside as quickly as previously expected. The Fed also revised upwards its economic growth and inflation projections for 2024 and 2025, while revising downwards its unemployment rate forecast for 2024 and 2025.

        KResearch views that the Fed is likely to trim the policy rate twice in line with the latest Dot Plot. Nonetheless, risks remain associated with US policies under President Trump's administration, particularly measures such as import tariff hikes, restrictions on immigrant labor, and income tax reductions, which could increase inflationary pressures in the US.

        Following the FOMC meeting results, the US stock market fell sharply and the US dollar strengthened. The Dow Jones Index fell 1,123 points, marking the tenth consecutive day of decline and the longest decline since 1974 while the S&P 500 and Nasdaq Indexes also declined. In terms of exchange rates, the US dollar strengthened, causing the Baht to decline to its weakest level of THB34.60/USD (data as of 9:00 a.m. on December 19, 2024), down from THB34.22/USD prior to the meeting.

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