The Fed pauses as inflation risks persist

The Federal Reserve kept its federal funds rate unchanged at 3.75–4.00% following its October FOMC meeting, with a 10–2 vote. Governors Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of a 25 bps hike, reflecting concerns that inflationary pressures remain persistent. The Fed upgraded its assessment of economic activity from “solid” to “strong,” citing resilient domestic spending, robust capital investment and stable labor market conditions.

However, inflation remains elevated, while geopolitical uncertainty and higher energy prices continue to complicate the policy outlook. Fed Chair Kevin Warsh reiterated that policymakers need more information to determine the appropriate policy stance, suggesting that the central bank remains cautious about tightening too quickly while maintaining its commitment to price stability.

Geopolitical tensions strengthen the higher-for-longer case

Oil prices have risen to around USD 115/bbl amid growing concerns over a potential resumption of US-Israeli military action against Iran following the November 3 US midterm elections. According to The Wall Street Journal, Washington has warned several Gulf Arab states to prepare for a possible short but intense campaign, although President Donald Trump has yet to make a final decision. A renewed conflict could threaten regional energy infrastructure and shipping routes, adding a geopolitical risk premium to oil prices. Beyond the immediate impact on energy costs, prolonged price increases could raise transportation and production expenses, gradually feeding into broader consumer prices.

The risk is particularly significant if disruptions to physical supply coincide with an already elevated oil price, making the shock more persistent than a temporary repricing of geopolitical risk. This would complicate the Fed’s efforts to bring inflation back to its 2% target without unnecessarily tightening financial conditions and slowing economic activity.

A December hike remains our base case

In our view, resilient economic activity, persistently elevated inflation support our expectation of one additional 25 bps Fed rate hike in December, bringing the federal funds rate to 4.00–4.25% by year-end. For Indonesia, MSCI-related uncertainty and the risk of renewed foreign equity outflows could intensify pressure across domestic financial markets.

We therefore revise our year-end USD/IDR forecast to 18,300 (prev: 18,000/USD) and raise our 10-year government bond yield target from 7.5% to 7.7%, reflecting the risk of sustained capital outflows and higher risk premia. These developments could also prompt Bank Indonesia to adopt a more aggressive stance than in our base case, 25 bps hike to 6.00% by year-end, if currency pressures persist.

FORE – More Cups, Thinner Crema

FORE – More Cups, Thinner Crema

Laurencia Hiemas

PT Fore Kopi Indonesia Tbk

30 October 2026 - 07.42am

FORE – More Cups, Thinner Crema

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