• News & Article
• Fed's First 25bps Cut: The Beginning of a New Chapter in Financial Markets

Fed's First 25bps Cut: The Beginning of a New Chapter in Financial Markets

Global markets moved sharply this week following an important decision from the Federal Reserve (The Fed). At the FOMC meeting on 17 September 2025, The Fed cut its benchmark interest rate (Fed Funds Rate/FFR) by 25 basis points to 4.00% – 4.25%.

This is the first cut throughout 2025, and marks the end of an extended period of elevated interest rates that has prevailed since late 2022. This move aligned with market expectations, but its impact could be far more extensive for global liquidity, equity markets, and mutual funds.

Why Did The Fed Cut Interest Rates?
There are two main reasons behind this decision:
1. US economic growth has slowed in the first half of 2025.
2. Employment growth has weakened, though it has not fallen significantly.

Nevertheless, Federal Reserve Chair Jerome Powell emphasised that this move is preventive in nature. In other words, it is not because the economy is already in recession, but rather as a precautionary measure to prevent any slowdown from deepening further.
Note: The current FFR level is equivalent to December 2022, which demonstrates how long interest rates have been maintained at elevated levels.

What's Next?
Through the September 2025 dot plot, The Fed has signalled that this cut is not the last one. The latest projections show:
- US GDP: marginally up to 1.6% (from 1.4%).
- Unemployment Rate: remains at 4.5%.
- General and core inflation: remains in the range of 3.0%–3.1%.
- Target FFR by end of 2025: to decline to 3.6% (vs 3.9% in June's projection).

In other words, the market expects The Fed to make an additional rate cut of approximately 50bps by year-end.

Impact on Indonesia
The Fed's dovish decision has major implications for emerging markets, including Indonesia:

1. Bank Indonesia Policy More Accommodative
Bank Indonesia (BI) has also cut its benchmark rate for the fifth time this year, by 25bps to 4.75%.

The gap between BI Rate and FFR is now only 50–75bps, so BI has limited room but continues to support growth.

2. Potential Strengthening of EM Currencies
The US Dollar (DXY) has weakened to 97 (-11.8% YTD).

This creates opportunities for emerging market currencies, including the Rupiah, to strengthen, although the transmission has not yet been visible.

3. Better Bond Market Liquidity
The decline in global yields makes foreign investors more likely to re-enter Indonesian bonds.

This is positive for fixed income funds, particularly those focused on government and medium-term corporate bonds.

What Does This Mean for Mutual Fund Investors?
For Indonesian investors, the decisions by The Fed and BI could be an important signal:
- Money Market Funds & Fixed Income Funds ; stand to benefit from the trend of declining interest rates as bond yields become more attractive, liquidity improves, and Rupiah risk is better contained.

- Equity Funds ; while foreign investors remain cautious, potential Rupiah strengthening and inflation stability could be positive catalysts for the IHSG in the final quarter of 2025.

- Diversification remains key ; the difference in global and domestic dynamics reminds us that portfolio strategy must be balanced, encompassing both defensive instruments (bonds) and growth assets (equities).

In other words, financial health and mental health go hand in hand, supporting each other in building a quality of life that is complete.

Closing Thought
The Fed's first cut in 2025 is not the end, but rather the beginning of a new chapter. Mutual fund investors should view this phase as an opportunity to rebalance their portfolio: take advantage of the momentum from falling interest rates, but remain vigilant against global volatility.

As always, the key is discipline in diversification. In the world of investing, it is not only about how much profit we seek, but also how well we can protect our assets amid uncertainty.