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When Kevin Warsh took over as Federal Reserve Chairman in early 2026, markets were pricing rate cuts by summer. That scenario is gone. Bank of America now projects three more 25-basis-point hikes — September, October, and December — which would push the Fed funds target to 4.25–4.50% by year-end. Deutsche Bank sees two additional hikes. The Fed’s own June dot plot pointed to a year-end median of 3.8%, already implying at least one more increase. For Thai investors, this is not a US domestic issue. It rewrites the investment case across every major asset class in Thailand.
Why Warsh Changed the Conversation
Before Warsh, the Fed’s communications leaned toward the view that rates would eventually come down as inflation moderated. The incoming data supported that narrative — PCE inflation fell from above 4% in 2025 toward 3.6% in 2026. But 3.6% is not 2%, and Warsh has been explicit that the Fed will not accept persistent above-target inflation as a new normal. His press conferences have introduced a harder edge to Fed communications: disinflation progress is welcome but insufficient; labour market resilience suggests the economy can absorb higher rates; and the Fed is “prepared to move.”
Markets heard him. The shift from cut expectations to hike expectations happened over roughly three months — unusually fast for a central bank repricing. That speed itself is a signal about how credible Warsh’s commitment is.
What Three More Hikes Mean for Thailand’s Currency
The BOT-Fed rate gap is currently 275 basis points (1% vs 3.5–3.75%). If BofA’s scenario plays out, that gap widens to 325 basis points by December (1% vs 4.25–4.50%). The baht is already at 33.53 per dollar — down 2.94% in a month. A 50-basis-point further widening of the rate differential over H2 2026 would sustain downward pressure on the baht through the rest of the year.
The BOT’s options remain limited. Thailand’s GDP growth forecast of 2.3% for 2026 is not strong enough to justify matching US rate hikes. Core inflation at a projected 1.5% gives the BOT no domestic inflation reason to tighten. The central bank will likely allow the baht to weaken gradually while smoothing excessive volatility — the same playbook it has used throughout 2026.
Impact on Thai Equities: The SET Under Rate Pressure
Three more Fed hikes would create two competing effects on the SET. The negative: capital outflows from Thai equities as yield differentials widen and dollar assets become more attractive. Foreign investors holding baht-denominated assets face a currency headwind that compounds any domestic market weakness. The positive: export-oriented SET-listed companies — automotive, electronics, petrochemicals — benefit from a weaker baht that makes their dollar revenues translate into more baht.
The net effect depends on which sector you own. Banks tend to suffer under a steeper global rate environment if Thai rates don’t follow. Industrial companies and exporters tend to benefit. The SET’s composition — heavy in financials but with meaningful export sector weight — means the index-level impact is ambiguous; sector selection matters more than market direction calls in this environment.
Impact on Thai Crypto and Gold Markets
Bitcoin and Ethereum, both currently in consolidation ranges after significant H1 drops, face continued headwinds if the Fed executes three more hikes. Higher US rates reduce appetite for non-yielding assets. The ETF outflows that characterised Q2 2026 would likely resume after each hike announcement.
Gold is more nuanced. A stronger dollar from higher US rates tends to push gold down in dollar terms. But for Thai investors, the baht translation works in the opposite direction — baht weakness from wider rate differentials partially offsets dollar-price weakness. Thai gold at 65,954 baht per baht-weight might see continued range-bound trading rather than the sharp moves that characterised H1.
The Practical Action for Thai Investors
The Warsh scenario — three more hikes, 4.25–4.50% by December — is not the market consensus, but it carries the credibility of BofA and Deutsche Bank endorsements. Treating it as a tail risk that deserves portfolio preparation is more appropriate than dismissing it.
Concrete steps: increase USD exposure via short-duration bond funds or foreign equity ETFs, reduce unhedged baht-denominated bond holdings (domestic fixed income underperforms when the baht weakens), and be selective on SET — favour exporters over domestic-demand plays and industrial estate operators over consumer-facing companies.
What to watch: July 29 Fed decision (the first live data point on whether Warsh will move), August US CPI and PCE data (the numbers that will confirm or deny the September hike case), and BOT’s August MPC meeting (any signal of a rate change response would be a major market event).
