• The Fed kept its policy rate unchanged at 3.50%–3.75%, a widely expected outcome, though futures contracts priced in a 30% probability of a 25-bps hike. The decision to hold was not unanimous, three members dissented in favor of a 25-bps hike, the same trio who dissented at the previous two meetings. The FOMC statement saw almost no change, and Fed chairman Kevin Warsh offered little guidance on the outlook ahead, consistent with his strategy of minimal communication
• Inflation remains above the Fed's 2% target. Core PCE stood at 3.4% as of May 2026, and may continue to stay elevated, given additional upward pressure on energy prices stemming from the renewed US-Iran conflict. The labor market, on the other hand, remains soft. Against this backdrop, the decision to hold rates and continue assessing conditions is well-justified
• Despite being a widely anticipated decision, the market reacted more aggressively than expected. The Dollar Index fell around 0.64%, and the yield curve bear-steepened: the 10-year yield rose approximately 6 bps and the 30-year around 11 bps, while the 3-month yield declined 8 bps.
• The market's aggressive post-meeting reaction reveals a growing Warsh credibility gap. He openly declared “This Fed will not waver” on the 2% inflation target and rejected any notion of a softer target, yet no action has been taken. Unable to extract forward guidance due to Warsh’s deliberate communication restraint, markets were left pricing in uncertainty, which explains both the dollar weakness and the bear steepening at the long end of the curve. Alternatively, this could also indicate that the market expects the divergence between Fed monetary policy and US real sector conditions to persist.
• Meanwhile, there has been no significant update on Warsh's five new task forces, which evaluate communications, balance sheet policy, data, productivity and jobs, and inflation frameworks. Notably, the Fed's balance sheet, which Warsh has expressed intent to shrink, has expanded slightly compared to the previous month.
• The Fed's decision provided the Rupiah with some breathing room, as prolonged domestic uncertainty has been weighing on the currency. Looking ahead, the Fed is still expected to hike at least once this year, with the market pricing in the possibility of a move as early as the next meeting. As such, we continue to expect Bank Indonesia to follow suit, with potentially up to 50 bps hike this year.

Versi lengkap report ini (dan report sebelumnya) dapat diakses lewat link berikut: https://s.id/BCA_REI