CIMB Thai Warns of 'Higher for Longer' Global Rates After Fed's First Hike in 3 Years

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Dr. Amornthep Chawala, Senior Executive Vice President and Head of the Research Office at CIMB Thai Bank, is warning investors to brace for global interest rates that may stay "higher for longer" than expected, after the US Federal Reserve raised its policy rate by 25 basis points to 4.00%, its first hike in three years. The Fed also signaled through its Dot Plot that rates will stay elevated through next year and that it may not rush to cut until 2028. In his view, a single hike is not enough to bring inflation under control, because monthly PCE figures for services and housing rents continue to climb, and there is a high chance the Fed will raise rates again in both October and December. The 10-year bond yield could drift to 5.3%, while the 2-year yield has already jumped to 4.74%, producing a yield curve flattening that is reflected in the CME FedWatch tool: investors do not believe the Fed will hike just once, and expect the Fed to push rates to 4.75% by the middle of next year. As for the impact on Thailand, the baht risks weakening to 34 per dollar on higher US rates plus oil prices still hovering above 100 dollars a barrel. And although the Monetary Policy Committee would like to hold rates steady, if the Fed keeps raising rates the Bank of Thailand may feel compelled to follow with a hike next year. The Fed sees US GDP growing 2.3% this year with unemployment at just 4.1%, and is sticking to the principle of a Monetary Policy of Discipline Not Decision to steer inflation back to its 2% target.

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