Jakarta, October 2025 — The United States central bank, the Federal Reserve (The Fed), has once again lowered its benchmark interest rate by 0.25% to the range of 3.75%–4.00%.
This decision was made after the latest data showed signs of a slowdown in the labor market and easing inflation. This rate cut is the second one implemented throughout 2025.
Although inflation remains relatively high, the cut signals a shift in The Fed’s policy direction toward easing, amid a weakening labor market.
The decision has become a major focus for global investors, including those in Indonesia. Every move by The Fed can affect international capital flows, exchange rates, and even the outlook for domestic interest rates.
The Fed’s policy not only reflects the condition of the U.S. economy, but also serves as a reference point for the direction of the global economy.
Reasons Behind The Fed’s Rate Cut
The U.S. economy has begun to show signs of slowing growth. Gross Domestic Product (GDP) rose 1.6% during the first six months of 2025, while its growth pace slowed by 2.4% compared to the previous year.
This indicates that economic activity is starting to lose momentum. The inflation rate is still above the 2% target, but signs of easing prices have emerged in recent months.
Meanwhile, labor market activity has begun to cool after several years of tight hiring in the post-pandemic period.
This economic slowdown and the loosening labor market form the basis for The Fed to adjust its monetary policy stance. Through its latest meeting decision, the FOMC (Federal Open Market Committee) officially moved to cut interest rates.
“The Federal Open Market Committee (FOMC) decided by a 10-to-2 vote to lower the target range for the federal funds rate by 0.25 percentage point to 3.75%–4%,” said Federal Reserve Chair Jerome Powell, as quoted by Bloomberg, Thursday (30/10/2025).
In addition, the FOMC also announced the halt of reductions in its holdings of U.S. government securities (Treasury Securities) on its US$6.6 trillion balance sheet, effective 1 December 2025.
This step is seen as a signal that The Fed is shifting away from a tight monetary policy stance toward a more adaptive approach, in order to maintain a balance between economic growth and price stability.
The Impact of The Fed’s Move on Inflation and Global Markets
● Risk of Inflation Potentially Rising Again
Easier interest rates have the potential to boost domestic demand and consumption. This could reignite price pressures in the goods and services sectors.
In addition, higher global energy prices and geopolitical uncertainty may reinforce inflation risks in the United States and globally.
Several analysts warn that if cost pressures from global oil, gas, and food prices increase, The Fed’s 2% inflation target could again be at risk, particularly in the first quarter of 2026.
● Reactions in the Stock, Bond, and Foreign Exchange Markets
U.S. financial markets responded to The Fed’s decision with modest gains in the S&P 500 and Nasdaq Composite indices. Meanwhile, short-term bond yields declined, indicating expectations for further monetary easing.
The U.S. dollar temporarily weakened against other major currencies. This reflects investor views that this policy opens the door for capital inflows into emerging markets, including Indonesia.
With lower global yields, rupiah-denominated assets such as Indonesian government bonds have the potential to become attractive again to foreign investors.
Implications for Investors in Indonesia
For Indonesian investors, this policy shift provides an opportunity to reassess portfolio strategies. One of the segments responding most quickly to global developments is the bond and mutual fund market.
● Opportunities in the Bond and Mutual Fund Markets
Global interest rate easing is generally followed by a decline in bond yields, but it opens up capital gain potential for investors who already hold these instruments.
Amid this trend, bonds and mutual funds offered by DBS Treasures priority banking can be a strategic choice for you.
You can take advantage of competitive coupons from available bonds, as well as potential returns from fixed income mutual funds. All transactions can now be carried out 24/7 through the DBS digibank app, providing both convenience and flexibility to adjust asset allocation in line with market dynamics.
With the right strategy, global rate cuts can become an opportunity to strengthen your portfolio position while maintaining long-term investment stability.
● Diversification to Reduce Risk
In a constantly changing market environment, it is important for investors not to place all funds into a single asset class. Diversification is key to keeping a portfolio resilient against market volatility.
With support from the DBS Treasures advisory team, clients can obtain asset allocation strategies that match their risk profile and current market conditions. This approach helps investors maintain a balance between growth and capital protection over the long term.
What Can Be Learned from The Fed’s Policy?
Global monetary policy has a broad impact on the value of personal investments. Every change in The Fed’s interest rate direction can influence asset prices worldwide, from stocks and bonds to currency exchange rates.
As a prudent investor, you need to review your portfolio strategy each time The Fed changes its policy. This step is crucial to ensure your investment decisions remain relevant to current economic conditions.
In this context, DBS Treasures is here for you and is committed to providing high-quality insights and in-depth analysis to help you make smarter, more measured investment decisions that align with your long-term financial goals.
Seeking Balance Between Growth and Stability
The Fed’s rate cut marks an important step in maintaining a balance between economic growth and inflation control. This policy is taken to support a labor market that has begun to weaken, yet with caution so that an inflation spike does not reoccur.
In a global environment that continues to evolve, the ability to adjust investment strategies is key to preserving your portfolio value. Amid the dynamics of global monetary policy, DBS Treasures priority banking stands as a trusted financial partner to help you invest safely, intelligently, and sustainably.
Supported by experienced Investment Managers and strategies built around growth, resilience, and long-term financial peace of mind, DBS Treasures priority banking helps you face market changes with confidence.
Not only that, you can also execute transactions, monitor your portfolio, and switch between bond and mutual fund products easily at any time through the DBS digibank Application.
The investment (Grow) and protection (Protect) approach offered by DBS Treasures priority banking also ensures that your portfolio can continue to grow while remaining shielded from market uncertainty.
Start your journey with DBS Treasures priority banking, because changes in global interest rates require not only strategy, but also a financial partner capable of turning market dynamics into long-term opportunities.
Find investment solutions that suit you on the DBS Treasures priority banking page!
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DBSI is licensed and supervised by the Indonesian Financial Services Authority (OJK). This publication does not constitute, and should not be regarded as, an offer, recommendation, and solicitation for you to purchase or conduct any transaction as described herein. It is also not intended to invite or permit any public offering for the purchase of, or participation in, any transaction in exchange for cash or any other form of benefit, and it should not be interpreted as such.
