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9 Jun 2020

International Economy

Fed to Keep Policy Rate Steady at 0.0-0.25% during June 9-10 Meeting Amid Heightened Economic Risk (Business Brief No.3870)

            The US economy continues to experience increased risk despite recovering signs seen after Washington began easing lockdown measures in May 2020. The US Purchasing Managers’ Index (PMI) came in at 43.1 in May, rising over the 41.5 reported for April while unemployment slipped to 13.3 percent in May, from the 14.7 percent recorded in April. Consumer spending and domestic travel have exhibited signs of recovery, too. Nevertheless, heightened risk is seen in the US economy because the relaxation of lockdown measures amid high number of new COVID-19 infections will likely spur a second wave of the pandemic. This coupled with domestic unrests may accelerate the COVID-19 transmission rate. The US economy is also bracing for risks stemming from political problems in the country, and the renewed trade war. It is expected that such factors will determine the directions of the US economy and Fed’s policies, going forward.                       KResearch has assessed that the Fed will maintain its policy rate at 0.0-0.25 percent during the upcoming monetary policy meeting scheduled for June 9-10, 2020. The Fed is not in dire need to push the Fed Funds rate to below zero or pursue yield curve control at this time as such policies may not only cause jitters in the market, but also affect stability in the financial sector. In addition, such policies been proven to be ineffective in shoring up economies in many countries struggling with deflation.  These policies, therefore, may not be suitable options for the US under the current circumstances. However, if the US economic performance deteriorates further, it is likely that the Fed will pursue a negative interest rate policy. Meanwhile, the upcoming FOMC meeting is scheduled to release its economic forecast and Fed Dot Plot, as well. We at KResearch view that the Fed may maintain a cautious stance towards the US economic performance, and expect that the Fed will keep its policy rate steady over the near term while continuing its quantitative easing (QE) until significant changes are seen in key US economic indicators. 

International Economy