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13 Jun 2024

Econ Digest

The Fed voted unanimously to hold its policy rates unchanged at 5.25-5.50%, and signaled only one rate cut this year

คะแนนเฉลี่ย
•    The US Federal Reserve (Fed) voted unanimously to hold its policy rate unchanged at 5.25-5.50% at the Federal Open Market Committee (FOMC) meeting on June 11-12, 2024, and signaled to continue QT tapering. Despite inflation showing a downward trend, the US labor market remains robust, although moderating towards a more balanced level.
•    The Fed signaled only one rate cut this year, as the latest dot-plot shows a median rate forecast of 5.1% at the end of 2024. The Fed stated that despite seeing renewed progress on inflation, it still needs more confidence that inflation is moving sustainably toward 2% before cutting rates. However, the Fed is ready to adjust its monetary policy direction if the labor market weakens more than expected or inflation decreases faster than expected.
•    In terms of economic and inflation forecasts, the Fed’s view is largely unchanged from the previous estimate. The Fed maintained the 2024 economic growth forecast at 2.1% and the 2024 unemployment rate at 4.0% but revised up the 2025 unemployment rate from 4.1% to 4.2%. Meanwhile, PCE inflation and Core PCE inflation for 2024 have been revised up slightly from 2.4% and 2.6% to 2.6% and 2.8%, respectively.
•    Despite the median rate forecast of 5.1%, implying only 1 rate cut this year, 4 committee members see no interest rate cut, 7 committee members see 1 rate cut, and 8 committee members see 2 rate cuts this year. This indicates a possibility that the Fed may cut its policy rates twice this year. Coupled with the Fed’s slightly less aggressive tone, the market now largely expects the Fed to cut its policy rates twice this year, which is likely at the September meeting and December meeting 2024.
•    The US market stock rose, the US dollar weakened, and the US bond yield declined after the US inflation data for May showed a decline. However, after the results of the FOMC meeting came out and the Fed signaled only 1 rate cut, which was less than what the market expected, the US stock market declined, the US bond yield rose and the US dollar strengthened slightly. Meanwhile, the Baht was traded at THB36.62/USD on June 13, 2024, slightly increasing from the closing level of THB36.69/USD of the previous trading day (12 June 2024).

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