Jakarta, CNBC Indonesia – The government continues to take various ways to make the vaccination rate reach 70% and hopes that the pandemic will turn into an endemic. This must be done because the impact of Covid-19 is extraordinary, not only in Indonesia but in many countries.
Who would have thought that Covid-19 was not the only serious threat that many countries had to watch out for.
The serious threat to the global economy warned by the Minister of Finance of the Republic of Indonesia, Sri Mulyani, is evident. Sri Mulyani called the threat the triple challenges, namely high inflation, high interest rates, and weak economic growth.
The results of the latest US central bank meeting minutes prove that Sri Mulyani’s worries are really haunting the global economy.
Minutes from the Fed’s May 3-4 meeting released Wednesday (25/51) showed that US central bank officials discussed the possibility that they would raise interest rates to a level high enough to deliberately slow economic growth to combat high inflation.
Federal Reserve officials thought they needed to raise interest rates by half a percentage point (50 bps) each at their next two meetings when they agreed to a second cycle of hikes at their meeting earlier this month.
This month’s half-point hike has lifted the Fed’s benchmark interest rate to a range between 0.75% and 1%. Officials unanimously approved a plan to begin shrinking the Fed’s $9 trillion portfolio on June 1 by allowing securities to mature without reinvesting the proceeds.
Despite agreeing to raise interest rates more aggressively in the next two months, Fed officials are still debating what steps to take next, whether aggressive policies continue or not.
Several regional Fed presidents have said they will support continuing their aggressive rate hike push in September if monthly inflation readings remain high.
President of the Fed St. Louis James Bullard has called for the Fed to raise interest rates to around 3.5% this year, meaning a half-point rate hike at every meeting this year.
In an interview with The Wall Street Journal last week, Fed Chair Jerome Powell set the bar relatively high for slowing rate hikes.
“We need to see inflation come down in a convincing way. Until that happens, we will keep moving [secara agresif],” said Jerome Powell.
Fed staff raised their inflation forecast slightly at this month’s meeting due to the slow resolution of supply constraints, projected higher import prices and assessments that rising wages will push service prices more than previously assumed.
Several Fed officials at this month’s meeting were also wary and warned of the risk that tighter Fed policy could exacerbate pressure in the market for US government securities.
Bond and stock markets have experienced a massive sell-off due to the Fed’s tight monetary policy. The Nasdaq Composite is down nearly 30% from its November 2021 high, although it is still around 15% higher than its pre-pandemic peak in February 2020.
As interest rates increase, the Federal Reserve will be watching closely for signs that the direction of the economy is also changing. Data released Tuesday showed new home sales fell 16.6% in April from the previous month, a sign that higher borrowing costs may be cooling the housing market.
The key question for the Fed is whether they will be able to slow the economy down enough to dampen inflation without triggering a recession, which Powell and his colleagues have repeatedly acknowledged as the real challenge.
Some of the world’s financial institutions have cut their US growth forecasts significantly. Goldman Sachs, an investment bank headquartered in New York, has lowered its forecast for US economic growth in 2022 from 2.6% to 2.4%. Meanwhile, according to Wells Fargo research, the worsening US economic condition will cut its Gross Domestic Product (GDP) growth target. ) end of 2022 to 1.5% from 2.2%.
Goldman Sachs also estimates that there is a 15% chance of the US economy entering a recession in the next one year and 35% in the next two years.
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