- The Fed hiked its policy rate by 25 bps to 3.75% - 4.00% for the first time since 2023, backed by an upbeat economy and elevated inflation. With core PCE at 3.3% YoY and ongoing geopolitical pressures, the higher-for-longer rate environment is set to persist.
- The hike reinforces Warsh's credibility and the Fed's independence, despite POTUS pushing for sub-1% rates. At least one more hike is projected this year, while Warsh's Five Task Forces are expected to share their findings by year-end.
- The Rupiah's reaction has been relatively muted, weakening only 0.3% despite a 0.6% rise in the dollar index. However, sustained global monetary tightening will pressure Bank Indonesia, and we expect BI to hike rates at least once more.
