The fed did not meet expectations, US stocks fell

Before Jerome Powell (The Fed) delivered his speech on Friday 26/08, the United States stock market S&P 500 experienced an increase of +1.7% in 2 days. This increase then receded after the Fed's statement that interest rates would remain at a high level. This is contrary to market expectations which predict that interest rates will begin to ease. On the last day of trading last week, US stocks fell, resulting in a sharp correction in the S&P 500 of -3.37%, after the Fed's statement was broadcast. Cumulatively, the performance of the S&P 500 index decreased by -1.94% last week.

High oil prices are driving a scarcity of subsidized fuel

Last week there was a discussion regarding the increase in subsidized fuel. There are three options considered until a decision is taken, including: 1) the option to maintain subsidized fuel prices by increasing the subsidized energy budget – small possibility; 2) control the volume of Pertalite and Diesel consumed; and 3) increase the price of subsidized fuel. If subsidized fuel prices are maintained at current levels, the government will have to provide an additional IDR 198 trillion for the energy budget. This exceeds the IDR 502.4 trillion budget stated in Presidential Decree/98 2022. Subsidies for domestic energy reserves may be larger with recent higher oil prices caused by OPEC+ officials' comments regarding possible oil production cuts at the September meeting.

The increase in interest rates is BI's preventive measure to fight inflation

Bank Indonesia (BI) finally decided to increase the benchmark interest rate by 0.25% to 3.75%. The decision to increase interest rates after 17 consecutive months of maintaining interest rates at 3.5% is said to be a forward looking step to mitigate the risk of increasing inflation and inflation expectations due to increases in non-subsidized fuel oil (BBM) prices and food inflation, as well as strengthening the policy of stabilizing the rupiah exchange rate. . This policy is a signal to capital market players that the risk of inflation will still exist in the near future.

Key Takeaways:

The United States market continued to close lower again, impacted by Jerome Powell's statement which was contrary to market expectations which predicted that interest rates would begin to ease. In the local market, there are 3 options regarding fuel subsidies and estimates for domestic energy reserves may be greater with recent higher oil prices due to OPEC+ officials' comments regarding possible oil production cuts at the September meeting. BI decided to increase the benchmark interest rate by 0.25% to 3.75%. as a preventive measure to curb the rate of inflation and the risk of increasing inflation.