The U.S. Bureau of Statistics recently announced that core inflation in the U.S. declined annually in December 2024 and is below expectations, although overall inflation is showing an increase. This latest data provides an interesting picture of current economic conditions and potentially influencing monetary policy in the future.

Details of the latest inflation figures

The following is a breakdown of the inflation figures released:

• **YoY inflation**: 2.9% (vs. consensus: 2.9%; Nov 2024: 2.7%)
• **MoM inflation**: 0.4% (vs. consensus: 0.3%; Nov 2024: 0.3%)
• **Core YoY inflation**: 3.2% (vs. consensus: 3.3%; Nov 2024: 3.3%)
• **MoM core inflation**: 0.2% (vs. consensus: 0.2%; Nov 2024: 0.3%)

With these figures, we can see that while overall inflation has increased slightly, core inflation reflects a more significant reduction. This certainly makes many market participants feel optimistic about the possibility of a larger interest rate cut by the Fed.

Market Reaction After Inflation Data Release

The US stock market strengthened after the release of this inflation data, with the DJIA index up 1.6%, the S&P 500 1.8%, and the Nasdaq jumping 2.4%. On the other hand, the US dollar index (DXY) fell 0.16% to 109.1, and the yield on 10-year US government bonds slumped 14 bps to 4.653%.

In Indonesia, the JCI also closed up 0.39% on the same day, although the yield on 10-year Indonesian government bonds fell 9 bps to 7.172%, while the rupiah weakened 0.24% to 16,360.

Statement from Bank Indonesia

Head of Bank Indonesia’s Monetary and Securities Asset Management Department, Edi Susianto, said that the weakening of the rupiah exchange rate against the US dollar is still under control. Edi emphasized that this weakness is short-term, where the market is still digesting Bank Indonesia’s decision to cut interest rates by 25 bps to 5.75% last Wednesday.

Interest Rate Cuts: What to Expect?

While expectations of interest rate cuts by the Fed are increasing, markets remain volatile. This begins with the narrative that the potential for new policies from the US government could affect the direction of interest rates. Donald Trump will be inaugurated as US president on January 20, 2024, and the Fed will hold a meeting on January 28-29, 2024 to discuss its monetary policy.

How to Deal with Market Volatility

In the face of the volatility of the interest rate narrative that can change at any time, investors need to consider locking in yields from short-term bonds that are still high and have low volatility. For example, PBS003 offers a yield of up to 6.79% per annum with a maturity of 2 years.

Conclusion

Overall, the sloping inflation figures in the US give market participants hope for the possibility of more aggressive interest rate cuts. Although the market in Indonesia responded positively, remain vigilant about the upcoming policy from the US, given the uncertain global economic situation. By keeping an eye on market movements, investors can make more informed and informed decisions.