Tisco Economic Strategy Unit (ESU) expects the Federal Reserve to keep the US interest rate unchanged until mid-2025, dampening prospects for global stock markets, with banks the exception.
Komsorn Prakobphol, head of Tisco ESU, said the Fed is likely to maintain the policy rates at 4.25-4.50% until at least mid-2025, pushing US bond yields to stay in a range of 4.50-5.0%, the highest level since the subprime crisis in 2008. As such, banking stocks will benefit from increased interest income in line with bond yields, but global stocks will be pressured, especially those traded at high values, said the think tank.
The stocks most likely to be affected are technology stocks and the Magnificent Seven, which are trading at high price-to-earnings ratios and will be under special pressure, said Mr Komsorn.
Tisco ESU believes the US inflation rate will hem in the Fed, as it remains above the regulator's 2% target and has not shown any signs of declining since mid-2024. Core CPI has been stable at 3.20-3.30% for eight consecutive months.
The US labour market remains strong, with the unemployment rate falling to 4.10% in December, coupled with continued robust economic growth.
"This is an obstacle to the Fed cutting interest rates and caused the market to adjust its interest rate outlook upwards," he said. "Previously the market expected the Fed to cut rates four times in 2025, but now it expects only one trim."
There is also uncertainty about President Donald Trump's tariff policy, which may hike import taxes on goods from China by up to 60% and imports from other countries by another 10%. Tisco ESU estimates such tariffs will cause US inflation to rise 1.20%.
"If Trump actually follows through on his campaign promises, the Fed may instead have to raise interest rates," said Mr Komsorn.
For its base-case scenario, the think tank estimates Trump will only raise tariffs by half of the proposed amount on China, and only slightly hike tariffs on other countries around the world. This approach would allow the Fed to cut interest rates two times in the second half of the year to 4% after tariff enforcement is clear, he said.