Federal Reserve faces inflation dilemma as Core PCE is projected to rise

Inflation projections for August 2026 indicate a complex trend for the Federal Reserve. While headline inflation is expected to decrease to 3.38% from 3.4% in July, Core Personal Consumption Expenditures (PCE) is projected to reaccelerate to 3.4% in August and 3.49% in September. This marks 65 consecutive months of Core PCE remaining above the 2% target.

Market analysts suggest that the possibility of a Federal Funds Rate increase of 25 to 50 basis points by the end of 2026 remains high, driven by strong US labor market indicators and persistent core inflation. This hawkish outlook has significant implications for Indonesian financial markets.

Recapital Asset Management projects that the Jakarta Composite Index (IHSG) could reach levels between 7,000 and 7,300, though a negative scenario could see it drop to 6,000 depending on Fed policy and the Rupiah's position. Additionally, 10-year Indonesian government bonds are projected to reach yields between 6.7% and 7.8%.