Fed Continues Holding Rates Cautiously
In May 2025, the Fed kept interest rates unchanged, citing trade tensions and economic uncertainty.
The Federal Reserve held interest rates steady at 4.25%–4.50% in May 2025, maintaining a cautious approach amid rising economic uncertainty. Chair Jerome Powell highlighted the growing challenges posed by trade tariffs and the increasing risks to both inflation control and employment. While inflation remains relatively contained, early signs of labor market softness are beginning to appear. Powell also acknowledged that monetary policy has limited power to address supply-side disruptions, reinforcing the Fed’s decision to stay on hold while monitoring data and global trade developments.
Market Reaction: Lower Yields, Cautious Sentiment
Markets are pricing in future rate cuts, with the U.S. yield curve shifting lower—especially at the front end. Traders now expect up to three cuts in 2025, anticipating softer growth ahead.
Meanwhile, foreign demand for U.S. Treasuries is cooling, especially from Asian investors, who are shifting toward gold, European bonds, and the Yen. While Trump’s pause on proposed tariffs provided short-term relief, uncertainty around U.S.–China trade talks continues to weigh on sentiment, keeping markets volatile and upside potential limited.
Trade Update: Signs of Progress
There’s a hint of relief on the trade front. The U.K. and U.S. reached a preliminary deal that lowers auto tariffs and exempts U.K. steel. More significantly, Trump has hinted at reducing the steep 145% tariff on China, sparking hopes for more constructive talks. While risks remain, these are encouraging steps.
Simpan Views
Fed’s “Wait-and-See” Stance
The Fed’s cautious stance leaves the door open for multiple outcomes. Sticky inflation or worsening geopolitical risks could keep rates elevated. But if data softens and trade tensions ease, the Fed may pivot to a more supportive stance. Until then, volatility is likely to persist.
Indonesia Continues to Look Compelling
Amid global uncertainty, Indonesia stands out. The Jakarta Composite Index rose 3.9% in April, led by strong domestic buying in blue-chip names. Inflation is under control, and a slight IDR rebound plus soft 1Q GDP numbers may allow Bank Indonesia to cut rates further—supporting both growth and asset prices.
We remain focused on:
high-quality domestic plays,
attractively valued blue chips,
and momentum-driven names benefiting from local flows.
These offer near-term resilience and long-term upside as EM interest rebounds.
Our Recommendation
With global markets in flux and the Fed staying put, Indonesia offers a stable and compelling opportunity. Our Sustainable Equity Fund outperformed its benchmark by 5.59% in April 2025. We believe there’s still room to grow, especially for long-term investors seeking sustainable and resilient returns.