Amornthep Chawala, Senior Executive Vice President and Head of the Research Office at CIMB Thai Bank, posted on Facebook that financial markets are facing a fresh round of pressure after the US Federal Reserve raised interest rates by 0.25% to 4.00%, while signaling a prolonged campaign, indicating the fight against inflation is not over. Amornthep pointed to four risk points to watch from here. First, the Fed still cannot contain inflation, because PCE inflation in services and housing rents continues to rise on a month-on-month basis, making it highly likely the Fed will have to keep raising rates in both October and December. Second, bond yields keep surging, with the 10-year yield potentially drifting to 5.3% if the US continues handing out money and public debt balloons, which would cause damage from falling bond prices and drag other countries' bond yields up as well. Third, the baht risks weakening sharply to 34 per dollar, driven by expectations of higher US rates plus oil prices still hovering above 100 dollars per barrel. And even though Thailand's Monetary Policy Committee wants to hold rates steady, if the Fed keeps raising rates relentlessly and bond yields keep surging, ultimately the Bank of Thailand may be forced to raise rates next year. Amornthep said the Fed is serious about this game, and global interest rates are likely to be higher and stay high longer than expected. Anyone investing in anything right now must be careful about the risks from rising rates and currency volatility.
Fed raised the effective funds rate by 0.25% to 4.00% and signaled more hikes ahead, pushing the policy rate higher.
Article warns the 10-year Treasury yield could drift to 5.3% as US debt balloons and the Fed keeps tightening.
