Jakarta. The Federal Reserve’s latest rate hike is likely to be a one-off move for the rest of 2026, with the US central bank expected to keep borrowing costs elevated for an extended period as it assesses persistent inflation, Bank Danamon chief economist Irman Faiz said.

The Fed raised its benchmark interest rate by 25 basis points to a range of 3.75% to 4% on Wednesday.

Faiz said the Fed’s projections and communications pointed to a more hawkish stance, although policymakers still expected headline inflation to ease substantially to 2.3%–2.5% in 2027.

“We expect policymakers to first assess whether recent inflationary pressures, particularly from energy, have become embedded in underlying prices before tightening again,” Faiz said in a statement on Thursday.

He expects the Fed to hold rates for an extended period rather than embark on a prolonged tightening cycle. A resilient US economy gives the central bank room to maintain restrictive monetary policy for longer, while persistent inflation limits the case for near-term rate cuts.

“Nevertheless, the risks are tilted toward further tightening if core inflation, inflation expectations or the pass-through of energy prices remain elevated,” Faiz said.

The Fed’s rate hike is also expected to constrain Bank Indonesia’s room for monetary policy maneuver.

Higher US Treasury yields and a stronger dollar could limit portfolio inflows and put pressure on the rupiah, while elevated oil prices could add pressure through trade and the current account, Faiz said.

“We maintain our year-end BI-Rate forecast at 6.25%, with foreign exchange intervention and non-interest rate measures likely to remain the first line of defense,” he said.

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