Bank Indonesia Predicts Limited Fed Rate Cut in 2025 Amidst Strong US Economy and Persistent Inflation

Bank Indonesia (BI) Governor Perry Warjiyo announced that the US economy is showing signs of improvement, but inflation remains elevated compared to the previous year. Consequently, BI anticipates the Federal Reserve (The Fed) will only implement a single interest rate cut of 25 basis points in 2025. This adjustment is expected to occur no sooner than the second half of the year. The robust US economic growth and high inflation have tempered expectations for a more aggressive reduction in the Fed Funds Rate (FFR). Warjiyo noted that the expansionary fiscal policy in the US is contributing to sustained high yields on US Treasury bonds. This environment is driving a strong preference among global investors to allocate their portfolios to US assets. The US dollar index remains high, exerting downward pressure on currencies worldwide. Warjiyo emphasized that the persistent global uncertainty necessitates robust policy responses to mitigate spillover effects, maintain stability, and foster domestic economic growth. He highlighted the ongoing divergence in the global economy, with the US economy remaining strong due to household consumption, high wages and productivity, and improved investment. In contrast, the economies of Europe, China, and Japan remain weak, influenced by subdued domestic demand and declining external performance amid a slowing global economy and the impact of increased US import tariffs. India's economic expansion is also constrained by fiscal consolidation and weak investment. BI projects global economic growth for 2025 at 3.2%.