Global economic uncertainty is predicted to continue for quite some time. One of the reasons is the Federal Reserve’s (The Fed) benchmark interest rate which is predicted to remain high in the near future.
In fact, a number of US economic data increasingly make it possible for the Fed to cut its benchmark interest rate. This can be seen from economic growth, inflation, and employment data in Uncle Sam’s country which are in line with market expectations.
However, on the other hand, US monetary policy will also certainly take into account the political dynamics that are occurring ahead of the election.
“It’s not easy for (Fed Chairman) Jerome Powell in the run-up to the election,” said Minister of Finance for the 2013-2014 period Muhammad Chatib Basri in a webinar entitled Indonesia’s 2025 Budget and Economic Outlook, Tuesday (20/8).
“So, maybe one possibility is that they (The Fed) will postpone it (the rate cut) until December, but we don’t know yet if this will happen. Yes, that’s why market and political factors are also important,” he added.
The market is known to have expectations that the Fed will cut its benchmark interest rate in September 2024 after the US employment data was released some time ago. In addition, the US inflation rate also tends to move towards the expected target.
Also read: BI Responds to Signal of Fed Interest Rate Cut
Chatib assessed that the US economic data should open up space for the Fed to cut the benchmark interest rate. However, the election factor also plays an important role and is something that will not escape the consideration of the US central bank.
The reason is, the two presidential candidates have fiscal policy orientations that are considered quite burdensome on the monetary side, namely excessive increases in the budget deficit. Both Kamala Harris and Donald Trump are considered to be going to raise the deficit to a much higher number.
The policy will cause a decline in the value of US Treasury bonds because the government will inevitably have to issue many bonds to patch the budget deficit. “In such a situation, it is not easy for the Fed to lower its interest rates, therefore, although I see room for the Fed’s interest rates, it may not be as much as the market expects,” Chatib said.
According to him, this will also have implications for central bank policies in almost all countries, including Indonesia. Because after the Fed issues its benchmark interest rate policy, the currency in almost every country will experience changes or even depreciation.
“So in a situation like this, maybe Bank Indonesia will wait for the Fed’s decision. If you look at inflation in Asia, it’s currently less than 3%. So the problem is not inflation, but how to maintain exchange rate stability,” Chatib concluded. (Z-11)
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