Bank Indonesia Predicts The Fed Will Hold Interest Rates

TEMPO.CO, Jakarta - Bank Indonesia predicts that the United States central bank, The Federal Reserve (The Fed), will hold its benchmark interest rates, despite President Donald Trump pushing for a cut. Currently, The Fed's interest rates stand at 4.25 to 4.5 percent.

The Fed is scheduled to announce the interest rates in the Federal Open Market Committee (FOMC) on Wednesday evening, May 7, 2025. "It seems that they (The Fed) are more concerned about inflation falling slower than their estimates," said the Head of Monetary and Securities Asset Management Department at Bank Indonesia, Erwin Gunawan Hutapea, to reporters at the Bank Indonesia office on Wednesday, May 7, 2025.

Erwin stated that The Fed's concern about inflation is greater than the concern about the US economic growth. This stems from the post-pandemic situation, where the Russia-Ukraine conflict had also affected the global supply chain. At that time, The Fed was either late in adjusting interest rates or too quick to lower them, causing inflation to spike unexpectedly.

Earlier, Donald Trump urged Jerome Powell to lower interest rates, just a few days after reciprocal tariffs were announced. "Energy prices fall, interest rates fall, inflation falls, even egg prices fall, and jobs rise, all within two months - a big win for America. Cut interest rates, Jerome, and stop playing politics!" Trump wrote in his social media post on Friday, April 4, 2025.

However, Powell warned Trump that the implementation of reciprocal tariffs could potentially increase inflation and simultaneously slow down economic growth. At that time, The Fed decided to maintain its benchmark interest rates.

The dispute between Trump and The Fed briefly weakened the US dollar, causing the exchange rate of the rupiah to strengthen. "The dispute between the Trump administration and the US central bank has been truly positive for the rupiah, even though the trade war is still raging and geopolitics is also in turmoil," said currency observer Ibrahim Assuaibi when contacted on Monday, April 21, 2025. According to Ibrahim, if Trump intervenes with The Fed, the dollar will be further abandoned by investors.

Editor's Choice: Bank Indonesia Holds Key Interest Rate Steady at 5.57%

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