Does this issue occur when all extensions are disabled?: Yes

• VS Code Version: 1.88.1 (Universal)
• OS Version: MacOS: Darwin x64 24.5.0

This is just informative (no bug I think) related to #205212
(maybe just add it to the initial ticket to help anyone struggling with the same issue)
pawelkontek @alexdima I had had exactly that same issue: wrapped lines would not indent
I had disabled all Extensions
Then I turned of "Optimize for Screen Reader" and the problem went away

• I'm not sure why I ever used "Optimize for Screen Reader" (no idea what it does)
• "solved" may be an over-statement. There may be a conflict between those two

Steps to Reproduce:

1. disable "Optimize for Screen Reader"

/chriV