The Federal Reserve is expected to raise policy interest rates at a slower pace, by 0.25 percentage points to 4.50-4.75% when it meets on Tuesday and Wednesday, as US inflation continues to weaken, says Kasikorn Research Center (K-Research).
"Amid signs of weakening inflation, the Fed will consider raising the policy rate at a slower rate of 0.25 percentage points at the upcoming Federal Open Market Committee meeting," the unit of Kasikornbank wrote in a paper.
US headline inflation fell for a sixth straight month to 6.5% in December 2022, the lowest level since October 2021.
However, inflation remains high and the US labour market is still strong, prompting market predictions that the Fed will continue to lift rates.
Looking ahead, the Fed's rate hike will depend on key inflation figures and economic data.
K-Research expects the US economy in 2023, especially in the first half, to feel the impact of the continuous rate hikes that started last year.
"The US economy is likely to have flat growth this year, so the Fed may need to weigh economic risks more heavily going forward, while US inflation is still significantly above the Fed's 2.0% target," the report noted.
K-Research anticipates US inflation would gradually decline this year as the global economic slowdown weighs on commodity prices.
The improved outlook for the Chinese economy following the country's reopening may push up commodity prices, but prices will not return to 2022 levels, which were largely influenced by the Russia-Ukraine war, said the think tank.
K-Research believes the Fed may lift the rate one more time at its March meeting, bringing US policy rates to a peak of around 5.0%, remaining at that level throughout 2023.
But if US inflation remains elevated and does not adjust as much as it should, while the labour market continues to strengthen, those factors would encourage the Fed to continue raising rates past 5.0%, said the think tank.
