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14 Dec 2018

International Economy

FOMC Meeting, December 18-19, 2018: Policy Rate Hike likely while Fed’s 2019 Monetary Policy Stand Hinges on Economic Conditions (Business Brief No.3776)

             We at KResearch view that the US Federal Open Market Committee (FOMC) will likely raise its policy rate by another 0.25 percent to 2.25-2.50 percent over the current 2.00-2.25 percent at its final meeting of 2018 as it marches toward a more normal policy stance, given that the US economy has outperformed its long-term growth potential. Although several US economic indicators have begun to decline, in particular housing market indicators following the Fed's gradual policy rate hikes, the US economic fundamental overall continues to support its monetary policy normalization. This is evidenced by the US manufacturing PMI that came in at 59.3 in November, suggesting that there will likely be positive sentiment in the US manufacturing sector going forward while employment grew faster than the latest round of the Fed Funds rate increase despite signs of slowing down.

            Looking ahead, the Fed's decision to raise its policy rate may depend on its economic assessment and downside risks. However, as new voting members of the FOMC are still cautious toward the Fed Funds rate rise, there is a likelihood that the next rate hike will be made after mid-2019 pending an assessment on the US economic development, in particular during 1Q19, as well as fiscal risk. If the US economy continues to outperform its long-term growth potential, it is likely that the FOMC will increase its policy rate at least once at its meeting slated for June 2019 and another one during 2H19 so as to bring the Fed Funds rate to a more normal level. 

International Economy