The Kasikorn Research Center expects the Federal Reserve (Fed) to cut its policy interest rate by 0.25% at the upcoming Federal Open Market Committee (FOMC) meeting scheduled for September 17-18, 2024. This would bring the rate down to 5.00-5.25%. The forecast follows signals from Fed Chair Jerome Powell during the recent Jackson Hole Symposium, where he indicated that it might be time to reduce interest rates amid slowing inflation.
In August, U.S. headline inflation dropped to 2.5% year-on-year (YoY), the lowest since February 2021, and slightly below market expectations of 2.6%. Additionally, U.S. labor market data showed signs of weakening, with nonfarm payrolls increasing by only 142,000 jobs in August, while the unemployment rate rose to 4.2%.
Looking ahead, Kasikorn Research expects the Fed to signal further rate cuts via its Dot Plot, projecting two more reductions of 0.25% each in the upcoming November and December meetings. By the end of 2024, the U.S. policy rate could settle at 4.50-4.75%. This outlook stems from expectations that the U.S. economy will experience a “soft landing” rather than a full-blown recession, as inflation gradually declines toward the 2.0% target.
Although core inflation in August showed a slight uptick from the previous month, Kasikorn Research believes the Fed does not need to make aggressive rate cuts of 0.50%, despite market speculation of such moves in November or December.
In the currency markets, the U.S. dollar has weakened significantly over the past 1-2 months, driven by market anticipation of Fed rate cuts. This has led to a 5.0% appreciation of the Thai baht against the dollar since early July. Moving forward, the dollar and baht are expected to remain volatile, influenced by upcoming economic and inflation data.
During the September FOMC meeting, the Fed will also release updated economic and inflation projections. Kasikorn Research anticipates that the Fed may lower its forecast for U.S. economic growth in 2024, with the economy expected to expand by 2.4% this year. In the fourth quarter of 2024, growth may fall below the 2.1% YoY predicted in the Fed’s June projections, pressured by slowing consumer spending. Additionally, the upcoming U.S. presidential election could introduce further uncertainty into the economic outlook.
