Economist Predicts The Fed Will Maintain Interest Rates This Month

JAKARTA - Bank Mandiri's Head of Economist Andry Asmoro projects that the US Central Bank or The Fed will maintain interest rates at the level of 5.25-5.50 percent at the meeting in July 2024.

The Fed is still cautious about cutting interest rates before inflation rates consistently drop close to the target of 2 percent.

"It is estimated that the Fed will only reduce the FFR (Fed Fund Rate) once this year, smaller than the previous plan three times in March 2024. This causes the flow of foreign funds still out of the domestic market and the weakening of the rupiah against the US dollar is still continuing," Asmo said in his statement in Jakarta, quoted from Antara, Friday, July 5.

The latest improving US data is expected to encourage the Fed to cut interest rates towards the end of the year so that it can strengthen the rupiah and attract foreign funds from entering 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) meeting, the majority of Fed officials said that there was potential for a reduction in Fed interest rates towards the end of the year.

At the same time they also show different levels of concern regarding the risk of lower interest rates. This shows that the Fed is still cautious in determining interest rate cuts.

Fed Chairman Jerome Powell said inflation had experienced another decline, but did not say whether the Fed was preparing a possible drop in interest rates in September 2024.

Although recent inflation reports are promising, the Fed still needs more evidence from other data before lowering interest rates.

Based on market estimates (CME Group), as of July 5, 2024, the first Fed rate reduction this year will occur in September 2024, with a probability of 66.5 percent and a second decline in December 2024 with a probability of 45.2 percent.

Investors will pay close attention to reports from the US labor sector today. Economists expect an additional 190 thousand non-farm payroll in June 2024, lower than the previous month.

While the US unemployment rate is estimated to remain at the 4 percent level. It is hoped that the data will show the economy is slowing down in a limited manner to prove that inflation is under control, but it will not cause a recession," said Asmo.

As for him attaching, the Asian stock market index moved lower with Shanghai falling by 0.29 percent to 2,949.1 and Hang Seng dropping by 0.86 percent to 17,872.8.

Meanwhile, the Composite Stock Price Index (JCI) rose 0.34 percent to the level of 7,245.2 where eight of the eleven sectors traded rose, led by the industrial sector.

Meanwhile, the return of the Indonesian government's IDR bonds with a tenor of 10 years fell 1.3 bps to 7.00 percent. Yield's US government bond (US Treasury Notes) reference tenor 10 years fell 0.6 bps to 4.35 percent.