Markets Convinced About US Interest Rate Cut; Indonesian Stocks & Rupiah Strengthen
Over the past month, expectations of a looming interest rate cut in the United States (US) have only grown. The US Federal Reserve is widely expected to start cutting its benchmark interest rate at its policy meeting scheduled for 17-18 September 2024. In fact, the question seems to be whether it’ll be a 0.25 or 0.50 percentage point cut.
In theory, only one matter could prevent a US interest rate cut in September, namely suddenly spiraling US inflation ahead of the Fed meeting. However, this seems quite unlikely, and so we should indeed expect a rate cut.
US inflation tumbled from a peak of 7.1 percent (y/y) in 2022 to 2.5 percent (y/y) in the present. And while that is indeed still not at the Fed’s 2.0 percent (y/y) target, it is also risky to keep US borrowing costs high. Not only could it cause an economic recession in the US (with various analysts arguing that it is already too late to fend off a recession in the US), but the turmoil on financial markets (that particularly hit Japan) in early August 2024 is regarded a sign that markets were disappointed with the Fed’s decision to keep interest rates unchanged at its last meeting. And so, if the Fed would decide to leave rates unchanged at its next meeting, we may need to brace for another roller coaster ride.
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