Washington. The Federal Reserve on Wednesday emphasized that inflation has remained stubbornly high in recent months and said it doesn’t plan to cut interest rates until it has “greater confidence” that price increases are slowing sustainably to its 2 percent target.

The Fed issued its decision in a statement after its latest meeting, at which it kept its key rate at a two-decade high of roughly 5.3 percent. Several hotter-than-expected reports on prices and economic growth have recently undercut the Fed’s belief that inflation was steadily easing. The combination of high interest rates and persistent inflation has also emerged as a potential threat to President Joe Biden’s re-election bid.

Following the Fed's decision to maintain interest rates, the Indonesian rupiah strengthened against the US dollar in today's morning trading session on Thursday.

“In recent months,” Chair Jerome Powell said at a news conference, “inflation has shown a lack of further progress toward our 2 percent objective.”

“It is likely that gaining greater confidence,” he added, “will take longer than previously expected.”

Powell did strike a note of optimism about inflation. Despite the recent setbacks, he said, “My expectation is that over the course of this year, we will see inflation move back down.”

Wall Street traders initially cheered the prospect that the Fed will cut rates at some point this year as well as Powell’s comment that the Fed isn’t considering reverting to rate increases to attack inflation.

“I think it’s unlikely that the next policy rate move will be a hike,” he said.

Still, Powell sketched out a series of potential scenarios for the months ahead. He said that if hiring stayed strong and “inflation is moving sideways,” that “would be a case in which it would be appropriate to hold off on rate cuts.”

But if inflation continued to cool — or if unemployment rose unexpectedly — Powell said the Fed would likely be able to reduce its benchmark rate. Cuts would, over time, bring down the cost of mortgages, auto loans, and other consumer and business borrowing.

The central bank’s overarching message Wednesday — that more evidence is needed that inflation is slowing to the Fed’s target level before the policymakers would begin cutting rates — reflects an abrupt shift. As recently as their last meeting on March 20, the officials had projected three rate reductions in 2024, likely starting in June.

But given the persistence of elevated inflation, financial markets now expect just one rate cut this year, in November, according to futures prices tracked by CME FedWatch.

The Fed’s warier outlook stems from three months of data that pointed to chronic inflation pressures and robust consumer spending. Inflation has cooled from a peak of 7.1 percent, according to the Fed’s preferred measure, to 2.7 percent, as supply chains have eased and the cost of some goods has actually declined.

The rupiah appreciated against the US dollar on Thursday. According to Bloomberg data, at 09:29 a.m. Jakarta time, the rupiah was trading at Rp 16,214 per US dollar, appreciated by 45.0 points (0.28 percent) compared to the previous trading session.

Meanwhile, the Composite Stock Price Index on the Indonesia Stock Exchange (IDX) opened lower, declining by 61.7 points (0.87 percent) to 7,172 at the beginning of today's trading session.

Last week, Bank Indonesia (BI) increased the benchmark BI-Rate by 25 basis points to 6.25 percent, citing escalating geopolitical tensions in the Middle East and high interest rates in the US, causing the rupiah to weaken.

This is the first interest rate hike since October 2023 and was contrary to analysts' expectations.