The US Federal Reserve is likely to keep its policy interest rate unchanged at its Federal Open Market Committee (FOMC) meeting this week as core inflation has slowed, although it still remains at a high level, say analysts.
Kasikorn Research Center (K-Research) expects the Fed may lift the rates again by year-end, although the probability is quite low as inflation is declining slowly and remains significantly above the central bank's target level of 2%. The US labour market has yet to slow down as expected.
"K-Research thinks it is most likely the Fed has already finished its interest rate cycle at the current 5.25-5.50% and will keep the rates unchanged at this level until at least the end of 2023 amid the current inflation and labour market," the unit of Kasikornbank said in a research note.
Looking ahead, there is still a possibility that the Fed might consider cutting policy rates in the second half of next year if the US economy slows down significantly.
Analysts have started to reduce the likelihood the US economy will slip into recession, trending instead towards a soft landing, K-Research noted.
Goldman Sachs said over the weekend it anticipates the Fed will raise its US growth outlook for 2023 at its annual policy meeting this week from 1% to 2.1%
"The US economy is expected to slow significantly next year, possibly growing below 1.0%. As a result, the Fed may have to switch to a loose monetary policy to support the US economy in the years ahead," said K-Research.
However, the direction of policy interest rates going forward will largely depend on economic and inflation data amid the uncertainty regarding US monetary policy, K-Research noted.
The exchange rate of the baht against the dollar is likely to fluctuate if the Fed "lifts the policy rates higher than expected or maintained the policy interest rate longer than expected", as the dollar would continue to appreciate, according to K-Research.
Krungsri Capital Securities also projected the Fed will maintain rates at this month's meeting. Results from a survey of CME Group Inc, the Chicago-based operator of financial derivatives exchanges, found 97% of surveyed investors believe the Fed will maintain interest rates at 5.25-5.50%.
As US inflation remains higher than the Fed's target of 2%, the US bond yield has surged, which is negative for fund inflows to Thailand. The 10-year US bond yield rose to 4.33%, the highest level in a year.