The Fed Predicted To Raise Interest Rates To 5.75 Percent By The End Of 2023

JAKARTA - The US Central Bank (The Fed) is predicted to increase the benchmark interest rate or Fed Funds Rate (FFR) at the level of 5.75 percent by the remainder at the end of 2023.

This was stated by Bank Mandiri Senior Economist Faisal Rachman in his research, Sunday, September 24.

"The FFR projection for this year remains at 5.75 percent, in line with June's projections. However, it is expected to increase to 5.25 percent by 2024, an increase from the previous projection of 4.75 percent," Faisal quoted Antara as saying.

At a Federal Open Market Committee (FOMC) meeting on Wednesday (20/9/2023), the Fed decided to maintain the benchmark interest rate at the level of 5.25-5.50 percent. This figure is the highest in 22 years. This indicates the potential for an additional interest rate increase at the end of the year due to continued inflation.

The Fed stressed that its decision would depend on a sustainable assessment of incoming data and the development of economic prospects and related risks.

Faisal views that there are more optimistic prospects for the growth of US gross domestic product in 2023, which is now estimated at 2.1 percent, and predicts 1.5 percent by 2024.

In overcoming inflation, it is also estimated that it will require a period of economic growth below the average and moderate labor market conditions.

Faisal assessed that in the future, the Fed is ready to raise interest rates further if deemed necessary and intends to maintain its policy at a restrictive level to believe that inflation is consistently moving towards a target of 2 percent.

"Compared to the Summary of Economic Projections, the projected median of the Fed's interest rate at the end of this year has not changed, but has increased by 50 bps in the following two years," said Faisal.

Furthermore, according to him, currently the Fed views current monetary policy as restrictive, thus putting pressure on economic activity, employment, and inflation.

Based on current indicators that show a strong expansion in economic activity, it exceeds the expectations of GDP's real growth this year. In particular, consumer spending has shown great strength.

From Indonesia's domestic side, Faisal predicts that Bank Indonesia (BI) will maintain interest rates or BI-7DRR at the level of 5.75 percent until the remainder of 2023 to maintain stability.

Indonesia's inflation rate has decreased and is currently in the target range of 2-4 percent. He assessed that inflation will continue to decline and remain in the target range until the end of 2023.

"However, it is important to realize that the potential threat to this downward trend includes factors such as El Nino and the current trend of rising global oil prices. That could pose an inflation risk," he said.