Observer Optimistic The Fed Will Maintain Interest Rates, Here Is Why

Currency and commodity observer Ibrahim Assuaibi is optimistic that the US central bank, the Federal Reserve (The Fed), will maintain interest rates. If The Fed maintains its rates, it will have a positive impact on the strengthening of the rupiah.

The US central bank meeting is scheduled to take place on 16–17 September 2026 to discuss the direction of benchmark interest rate policy. The Federal Funds Rate (FFR) currently stands in the range of 3.50%–3.75%. The last time the FFR was raised was in July 2023 by 25 basis points to the 5.25%–5.50% level, before eventually entering a cycle of holding and reducing interest rates until early 2026.

Ibrahim noted that many observers believe there is an 85%-90% probability that The Fed will increase interest rates. However, he believes that Kevin Warsh, the Chair of The Fed, is likely to maintain the current rates during the meeting. He cited Warsh’s statements in August suggesting that US interest rates are currently too high.

Nevertheless, during the first week of September, while speaking at Congress, Warsh stated that interest rates would be raised if inflation remains high. This has served as a reference for economists and analysts, as the prices of essential goods, including energy in the US, continue to rise. For instance, petrol prices, which were previously US$4.6–US$4.8 per gallon, have risen above US$6 per gallon, impacting US inflation. This surge is linked to the intensifying geopolitical tensions in the Middle East.

Ibrahim explained that during periods of high inflation in the US, there were reports that Kevin Warsh might raise interest rates because his deputies suggested it was an appropriate time to do so. However, he noted that US President Donald Trump has intervened, suggesting that Warsh should not raise rates but should instead lower them. This intervention is why Ibrahim believes the central bank is likely to maintain rates during the Thursday morning meeting.

According to him, if the central bank maintains interest rates, it will positively impact the future exchange rate of the rupiah, although the strengthening may be limited. Additionally, global gold prices, which had previously undergone a correction, are likely to strengthen again as the news of maintained interest rates will be responded to positively.

Conversely, if the central bank were to raise interest rates, foreign funds in Indonesia would likely flow back to the US. This would negatively impact the Indonesia Composite Index (IHSG), the rupiah exchange rate, and foreign investors withdrawing funds. This is because higher interest rates lead to higher US bond yields, which negatively impacts capital flows.

Despite the pressure from deputies to raise rates due to high inflation, Ibrahim remains optimistic that Kevin Warsh will likely maintain the interest rates during this week’s meeting.