- The “higher-for-longer” expectation for the US policy rate have strengthened following the Jackson Hole conference, fuelling the rally in the USD’s value while also sending the yield on UST securities higher.
- Despite the likely prolonged period of high-interest rate, the terminal FFR rate may not be necessarily higher given the lengthened duration of lags in monetary policy transmission amidst the still-ample liquidity condition in the US economy.
- The observed lengthening transmission lag is also evident in Indonesia. This situation, combined with BI’s increasing policy independence following the introduction of new instruments, may allow BI to keep its policy posture despite the risk of rate parity with the Fed.
