Hawkish cut by The Fed

Jakarta Composite Index (JCI) touched -2% today due to rising selling pressure across the board as USD strengthens after FOMC December meeting. The Fed delivered a 25bps cut, within market expectation. Despite the cut, the message from The Fed is rather hawkish as compared to September FOMC projections, Fed funds rate cut projection for 2025 is lowered from 100bps to 50bps, higher core PCE inflation for 2024-2026, and lower unemployment rate for 2024-2025. This put USD in a strong position and the higher inflation assumption could put the monetary policy easing path to a slower pace. As a result, there could be headwinds for emerging markets like Indonesia where currency volatility becomes one of the main risks.