WASHINGTON — For the first time in 2026, the Federal Reserve officially cut its benchmark Federal Funds Rate (FFR) by 25 basis points to 4.25-4.50 percent. The decision, announced Wednesday evening US time, immediately sparked optimism in global financial markets, including Indonesia, which recorded significant foreign capital inflows.
This marks the first cut since September 2024, when the Fed began its easing cycle after nearly two years of maintaining rates at their highest level in two decades. According to the FOMC statement, the cut was driven by inflation data continuing to ease toward the 2 percent target and signs of slowing in the US labor market.
Fed Chair Jerome Powell emphasized in a press conference that the central bank would continue monitoring economic data before determining next steps. "We see encouraging progress on inflation, but we need greater confidence before proceeding with further easing," Powell stated.
THE BACKGROUND BEHIND THE FED'S DECISION
The Fed's decision did not happen suddenly. Throughout the first quarter of 2026, a series of economic indicators showed signs of slowing. First-quarter GDP growth registered at just 1.8 percent annually, below market expectations of 2.2 percent. Meanwhile, the unemployment rate rose from 3.7 percent to 4.1 percent over the past six months.
The US Consumer Price Index (CPI) has declined from its peak of 9.1 percent in June 2022 to 2.5 percent in May 2026. Although still slightly above the 2 percent target, this consistent downward trend provides room for the Fed to begin loosening monetary policy.
DIRECT IMPACT ON INDONESIAN MARKETS
The Fed's decision had an immediate positive impact on Indonesian financial markets during Thursday's trading session. The Jakarta Composite Index (IHSG) closed 1.34 percent higher at 7,245, its highest level in three months. Foreign investors recorded net buying of Rp 1.2 trillion, primarily in the banking and technology sectors.
The Indonesian rupiah also strengthened significantly, closing at Rp 15,850 per US dollar, up 0.8 percent from the previous day. Bank Mandiri's Chief Economist predicts the rupiah could strengthen further toward Rp 15,700 in the near term, driven by foreign capital inflows into government bonds.
Yields on 10-year government bonds fell 12 bps to 6.85 percent, indicating increased investor interest in Indonesian financial assets. The narrowing yield spread between Indonesian bonds and US Treasuries makes Indonesian bonds increasingly attractive to global investors.
MOST BENEFITED SECTORS
The Fed's rate cut brought gains to several sectors on the Indonesian stock exchange. The banking sector was among the biggest beneficiaries. Shares of major banks like BBCA and BBRI rose 2.1 percent and 1.8 percent respectively. Analysts at Mandiri Sekuritas explained that lower global interest rates would ease pressure on banks' net interest margins and encourage credit expansion.
The property sector also saw significant gains. Real estate developer stocks like CTRA and PWON rose an average of 3.2 percent. Lower benchmark rates are expected to be followed by lower mortgage rates, which will in turn boost property demand, especially in the middle segment.
The technology sector, which had been under pressure throughout the year, also rebounded. Tech stocks like GOTO and BUKA rose 4.5 percent and 3.9 percent respectively. This sector benefits from expectations of lower funding costs and higher valuations as global interest rates decline.
| Sector | IHSG Change | Foreign Net Buy | 6-Month Outlook |
|---|---|---|---|
| Banking | +2.1% | +Rp 450B | Positive |
| Property | +3.2% | +Rp 180B | Strongly Positive |
| Technology | +4.2% | +Rp 320B | Positive |
| Infrastructure | +0.8% | +Rp 90B | Neutral |
| Consumer | -0.3% | -Rp 50B | Neutral |
FUTURE OUTLOOK AND RISKS
Economists expect the Fed to cut rates at least two more times in 2026, with total cuts reaching 75 to 100 bps by year-end. If this scenario materializes, the IHSG is projected to break through 7,800 to 8,000 by end of 2026, while the rupiah could strengthen below Rp 15,500 per US dollar.
Head of Research at Samuel Sekuritas Indonesia stated that global monetary easing will be a key catalyst for the Indonesian stock market in the second half of 2026. "Abundant global liquidity will drive investors to seek yields in emerging markets. Indonesia, with its solid economic fundamentals and growth prospects above 5 percent, will be a prime destination for global investment."
However, he also warned of risks to monitor. If US economic data shows signs of overheating, the Fed could delay further easing. Additionally, global geopolitical tensions, China's economic slowdown, and potential energy crises in Europe remain risks that require continuous monitoring.
For retail investors, this moment presents an opportunity to begin gradual stock accumulation, particularly in sectors benefiting from lower interest rates. However, it is strongly advised not to invest emotionally, to maintain portfolio diversification, and to focus on long-term investment goals.
The global economy continues to move dynamically, but Indonesia is in a favorable position to capitalize on this monetary easing momentum. Solid fundamentals, adequate foreign reserves, and strong domestic consumption serve as shields protecting the Indonesian economy from external shocks. Stay informed and follow in-depth analysis only at DailyMoney. Smart investing for a brighter future.