Federal Reserve's Chairman Jerome Powell in talks with Fellow Central Bank's Governors at the G20 Meeting in Bali last October - Photo by IMF-WB Official

JAKARTA (TheInsiderStories) – Pressure on the Rupiah continued after the Federal Reserves (Fed) released a minutes of meeting, which showed that policy makers at the world’s most powerful central bank voted unanimously on rate hike path. Rupiah ended its two-day wining streak, falling to 15,187 per US$1 from 15,178 per US$1, according to Bank Indonesia’s reference rate.

The latest joint meeting between Federal Open Meeting Committee (FOMC) and the Board of Governors on Sept. 25-26 indicated the Fed to raise the key interest in October meeting amid United States (US) President Donald Trump criticized on the central bank monetary action.

The Fed voted for a quarter-point hike to its benchmark rate target at that meeting. The reasoned, the central bank stated, to slowdown from the cost borrowing

“After assessing current conditions and the outlook for economic activity, the labor market, and inflation, members voted to raise the target range for the federal funds rate to 2 to 2-1/4 percent,” the meeting said.

In a written statement released on Oct. 17, the FOMC said all participants generally anticipated that further gradual increases in the target range for the federal funds rate would most likely be consistent with a sustained economic expansion, strong labor market conditions, and inflation near 2 percent over the medium term.

The members also said in the meeting notes that there might be a period where the Fed even will need to go beyond normalization of rates and into a more restrictive stance.

On the global markets, the committee showed, strains in emerging market economies contributed to volatility in currency and equity markets over the period. In addition, concerns about trade tensions between the US and China were the focus of a great deal of attention among market participants.

Such concerns, the board said, led the Shanghai Composite index to drop as much as eight percent at one point over the inter-meeting period before recovering somewhat. The renminbi, however, was relatively stable, reportedly in part because investors believed that Chinese authorities were prepared to take measures to counter significant renminbi depreciation.

Regarding domestic financial markets, the FOMC noted that U.S. equity markets had posted strong gains, spurred by optimism regarding the US economic outlook and rising corporate earnings. Longer-term, US’s treasury yields moved higher, and market-based measures of the expected path of the funds rate edged up.

The meeting alsoindicated that labor market conditions continued to strengthen in recent months and that real gross domestic product (GDP) appeared to be rising at a strong rate in the third quarter, similar to its pace in the first half of the year.

The flooding and damage from Hurricane Florence, which made landfall on September 14, seemed likely to have a modest, transitory effect on national economic growth in the second half of the year. Consumer price inflation (CPI), as measured by the 12-month percentage change in the price index for personal consumption expenditures, remained near 2 percent in July.

Total non-farm payroll employment increased at a strong pace, on average, in July and August. The national unemployment rate decreased to 3.9 percent in July and remained at that level in August, while the labor force participation rate and the employment-to-population ratio moved down somewhat, on balance, over those two months.

Total US consumer prices increased 2.3 percent over the 12 months ending in July. Core price inflation, which excludes changes in consumer food and energy prices, was 2.0 percent over that same period. The consumer price index rose 2.7 percent over the 12 months ending in August, while core CPI inflation was 2.2 percent.

Furthermore the FOMC said, the global financial markets were volatile during the inter-meeting period amid significant stress in some emerging countries, ongoing focus on Brexit and on fiscal policy in Italy, and continued trade tensions. Turkey and Argentina experienced significant stress, and other countries with similar macroeconomic vulnerabilities also came under pressure.

Trade tensions weighed on foreign equity prices, as the United States continued its trade negotiations with Canada and placed additional tariffs on Chinese products. The market-implied probability of an additional rate increase at the December FOMC meeting rose to about 75 percent. The market-implied path for the federal funds rate beyond 2018 increased a touch.

The meeting stated, broad US equity price indexes increased about 4 percent since the August FOMC meeting, as positive news about corporate earnings and the domestic economy outweighed negative international developments. Stock prices increased for many sectors in the S&P 500 index, as the second-quarter earnings reports for firms that reported later in the earnings cycle came in strong.

However, concerns about economic prospects abroad–particularly with respect to trade policy and China–appeared to weigh on stocks in the energy and basic materials sectors, which declined.

The member forecast for total price inflation in 2018 was revised up slightly, mainly because of a faster-than-expected increase in consumer energy prices in the second half. The staff continued to project that total inflation would remain near the Committee’s 2 percent objective over the medium term and that core price inflation would run slightly higher than total inflation over that period because of a projected decline in consumer energy prices in 2019 through 2021.

The meeting viewed the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as similar to the average of the past 20 years. The staff also saw the risks to the forecasts for real GDP growth and the unemployment rate as balanced.

In their discussion of monetary policy for the period ahead, members judged that information received since the Committee met in August indicated that the labor market had continued to strengthen and that economic activity had been rising at a strong rate.

Job gains had been strong, on average, in recent months, and the unemployment rate had stayed low. Household spending and business fixed investment had grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remained near 2 percent. Indicators of longer-term inflation expectations were little changed on balance.

Followed the FOMC decision and other issues, pressures on the global financial market continued included Indonesia. Investors nerve still high and should have strong analyze to anticipate the next turbulence in the financial market.

Email: linda.silaen@theinsiderstories.com

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