Fed on the brink: Rate cut looms as US plays interest-ing game
Anticipation is reaching fever pitch as the US Federal Reserve gears up for a crucial meeting, with punters betting on a 25 basis point interest rate cut. Slated for December 18, this decision could have ripple effects all the way to Thailand, where the Bank of Thailand might follow suit in the coming months.
The Federal Open Market Committee (FOMC) is tipped to trim interest rates to between 4.25% and 4.50%, as hinted by recent murmurs from Fed governors. Pundit prediction site Kalshi has pegged the odds at a cool 73% in favour of the cut.
Although key economic reports on employment and inflation are still to come, the current climate of “subdued inflation and a somewhat softening jobs market” nudges the scales towards a cut.
Having already snipped rates in September and November after holding them high for over a year, policymakers are expected to keep shearing, data permitting. John Williams, the New York Fed President, backs more cuts and is pressing for a “balanced” monetary strategy to give the economy a boost.
“Decisions will hinge on the unpredictable nature of economic data.”
On the macroeconomic front, October saw job openings tallied at a whopping 7.74 million, steaming past expectations of 7.48 million. Meanwhile, the GDP tracker from the Atlanta Fed predicts a healthy 3.2% quarter-on-quarter growth in US GDP for the fourth quarter.
Speaking recently at the New York Times DealBook Summit, Fed Chair Jerome Powell portrayed the US economy as in “remarkably good shape,” which grants the Federal Reserve some leeway to “be a little more cautious” in trimming interest rates.
Market expectations, according to the CME FedWatch tool, show a 77% chance of a 25 basis point cut, a bump up from 67% the previous week. Despite A lingering inflation threat over the FOMC’s 2% annual target, analysts reckon policymakers are more interested in the overall disinflation trend rather than isolated figures.
Closer to home, Asia Plus Securities expects the Bank of Thailand to maintain its policy rate at 2.25% for its December 18 shindig.
The Thai economy is ticking along nicely, buoyed by exports, tourism, and domestic consumption, alongside a 10,000-baht cash injection for 14.5 million of the country’s most vulnerable. Inflation is nudging towards the central bank’s sweet spot of 1-3%.
What Other Media Are Saying
- Bangkok Post highlights the Federal Reserve’s significant interest rate cut, suggesting it may influence the Bank of Thailand’s policy decisions, with potential economic growth and market confidence at stake. (read more)
Frequently Asked Questions
Here are some common questions asked about this news.
Why might the US Federal Reserve consider cutting interest rates despite a strong economy?
To balance economic growth with inflation control, adapting to evolving data suggesting a softer job market and subdued inflation.
How could a US interest rate cut influence the Bank of Thailand’s monetary policy decisions?
It might prompt Thailand to adjust its rates to maintain competitive economic conditions and manage capital flows.
What if the Federal Reserve delays the interest rate cut due to persistent inflation concerns?
Delaying could signal a cautious stance, potentially affecting global markets and economic strategies in emerging economies.
How does the perception of disinflation impact the Federal Reserve’s policy decisions?
Focusing on disinflation trends allows flexibility in policy, aiming to sustain growth while gradually achieving targeted inflation.
What role do economic indicators like GDP and job openings play in shaping interest rate decisions?
They provide insight into economic health, helping policymakers predict trends and adjust rates to foster sustainable growth.
Latest Thailand News
