Dr. Pipat Luengnaruemitchai, Managing Director and Chief Economist at Kiatnakin Phatra Financial Group, said the latest Federal Reserve meeting reflects how policy uncertainty may affect financial markets more than a rate decision. Although new Fed Chair Kevin Warsh did not raise rates, long-term US Treasury yields rose, the yield curve steepened, long-term inflation expectations edged up, and the US dollar weakened. This suggests investors are demanding higher risk compensation due to uncertainty over the Fed's reaction function, especially with inflation still above the 2 percent target and a strong labour market. Dr. Pipat believes markets may be pricing in policy credibility risk rather than reflecting a strong US economy, and the September meeting will be a key moment to restore market confidence.
Long-term US Treasury yields rose due to uncertainty over Fed's reaction function, indicating higher risk premium.
