The US central bank or The Fed is expected to maintain interest rates at 5.25%-5.50% at its July 2024 meeting. The Fed is still cautious regarding cutting interest rates before inflation consistently falls closer to the target of 2%.
“It is estimated that the Fed will only lower the FFR (Fed Fund Rate) once this year, smaller than the previous plan of three times in March 2024. This has caused foreign funds to still flow out of the domestic market and the weakening of the rupiah once morest the US dollar continues,” said Bank Mandiri Chief Economist Andry Asmoro in his statement in Jakarta, Friday (5/7).
The latest improving US data is expected to encourage the Fed to cut interest rates towards the end of the year, which can strengthen the rupiah and attract foreign funds to Indonesia. Technically, the rupiah will tend to move to the range of 16,300-16,500 per US dollar.
Asmo analyzed based on the minutes of the last Federal Open Market Committee (FOMC Meeting), the majority of Fed officials said that there is a potential for a Fed rate cut towards the end of the year. At the same time, they also showed different levels of concern regarding the risk of a rate cut. This shows that the Fed is still cautious in determining interest rate cuts.
Fed Chairman Jerome Powell said inflation is falling once more, but stopped short of saying the Fed is preparing for a possible interest rate cut in September 2024. While recent inflation reports have been encouraging, the Fed still needs more evidence from other data before cutting rates.
Based on market forecasts (CME Group) as of July 5, 2024, the first Fed rate cut this year will occur in September 2024 with a probability of 66.5% and the second cut in December 2024 with a probability of 45.2%. Investors will be watching the US labor report today.
Also read: Rupiah Strengthens to 16,200 Range per US Dollar
Economists expect non-farm payrolls to increase by 190,000 in June 2024, down from the previous month. “While the US unemployment rate is estimated to remain at 4%. It is expected that the data will show the economy slowing down to a limited extent to prove that inflation is under control, but not to the point of causing a recession,” Asmo said.
He added that the Asian stock market index moved lower with Shanghai down 0.29% to 2,949.1 and Hang Seng down 0.86% to 17,872.8. The Jakarta Composite Index (JCI) rose 0.34% to 7,245.2 with eight of the 11 traded sectors strengthening led by industrials.
Meanwhile, the yield on the 10-year Indonesian government bond fell 1.3 bps to 7.00%. The yield on the benchmark 10-year US Treasury Notes fell 0.6 bps to 4.35%. (Ant/Z-2)
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