Economist Predicts The Fed Will Cut Interest Rates Twice This Year

Illustration. (Photo: Doc. Antara)

JAKARTA - Bank Mandiri's economic research team projects that the US central bank or the Fed will cut the Fed Funds Rate twice in 2024, namely in September and December.

"We expect to cut the rate twice in September and December, each with 25 basis points," Reny said, quoted from Antara, Wednesday, September 4.

Reny predicts that by the end of 2024 the Rupiah will be in the range of Rp15,500 to Rp15,700 per US dollar.

Assuming the first FFR cuts will occur at the September 2024 Federal Open Market Committee (FOMC) meeting, Rupiah still has the potential to strengthen. However, it is necessary to watch out for risk factors related to geopolitical tension and the results of the 2024 US general election (election).

On the other hand, the nearly certain chances of the United States (US) or the Fed's central bank to cut interest rates have prompted positive sentiment in the domestic market with the return of foreign funding.

Throughout August 2024, the flow of foreign funds to the Indonesian domestic market through the stock market and bonds reached IDR 49.1 trillion, with capital inflow of IDR 19 trillion.

Over the past week, the Rupiah movement fluctuated between Rp15,368 per US dollar to Rp15,548 per US dollar.

The movement of the rupiah is influenced by market players who are waiting and observing the Fed's plan to cut the FFR in line with the weakening development of the US labor market and declining inflation gradually.

This week, Reny projects that the Rupiah exchange rate will move to the range of Rp15,403 to Rp15,613 per US dollar.

Currently, the Fed is still considering the right time to lower the FFR seeing US inflation starting to decline to reach the target set by the US central bank of 2 percent.

US inflation was recorded at 2.9 percent year on year (yoy) in July 2024, lower than inflation in June 2024 which was 3 percent (yoy).

In the Fed Guidance as of June 2024, the Fed still indicates a decrease in interest rates by only once in 2024, less than the previous plan which was three times in the March 2024 Fed Guidance.

However, based on market consensus compiled through the CME Group as of September 2, 2024, the Fed is expected to lower its benchmark interest rate by 25 basis points (bps) to around 5-5.25 percent with 71 percent chance at the FOMC meeting in September 2024.

In addition, there is a 51.4 percent chance of further cuts to reduce FFR by 25 bps at the FOMC meeting in November 2024 to 4.75-5 percent.

"The potential for cut in interest rates will be even greater if inflation can decline again and US labor data will weaken," said Reny.

The US unemployment rate was recorded at 4.3 percent in July 2024. The Fed will pay close attention to the development of US economic data such as economic activity, price levels, and data jobs ahead of the FOMC meeting.