The Fed held its policy rates unchanged at 5.25-5.50% as expected, but keeps door open to further rate hikes

• 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 October 31 - November 1, 2023. Signals from the Fed have not changed significantly from the previous meeting. The Fed kept its policy rates unchanged in order to wait and see what the future trend of inflation and the economy will be, which will gradually be affected by the recent rapid rate hikes and tightening of financial markets (reflected through rising bond yields). However, the Fed still keeps the door open to future rate hikes if necessary, as deeming that it will take longer to bring inflation down to the Fed’s target.
• However, the Fed’s more dovish tone at this meeting, giving less weight to the Fed’s dot plot released at the previous meeting that signaled the possibility of one more rate hike this year, leads most market participants to view that the Fed may pause its policy rate hikes in this cycle and maintain the rate at 5.25-5.50% at least until the end of this year. Nonetheless, KResearch views that going forward, the Fed will be cautious in implementing monetary policy while further rate hikes will mainly depend on economic and inflation data. The Fed is still leaving the door open to future rate hikes if future inflation declines only gradually, and if the US labor market does not slow as anticipated.
• As for the impact on the Baht, although the Fed’s dovish remarks has led to the weakening of the US dollar, the Baht may face pressure from the strengthening of the US dollar if the Fed turns hawkish by raising more rates or keeping interest rates high for longer than expected.

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