Market Reaction to the 2025 Federal Reserve Interest Rate Cut: Evidence from LQ45 Stocks

Abstract

Changes in the Federal Reserve’s interest rate policy exert a broad influence on global financial markets, including Indonesia’s capital market. The announcement of a 25-basis-point rate cut on October 29, 2025, served as an important monetary signal that could reshape investor expectations and influence stock price dynamics, particularly among large and liquid firms included in the LQ45 Index. This study applies a quantitative approach using the event study method to analyze market reactions within an 11-day event window (H-5 to H+5). Expected returns are estimated using the market-adjusted model, while abnormal returns are examined through a one-sample t-test. The findings indicate the presence of abnormal returns around the announcement date, although statistical significance emerges only on certain days. This evidence suggests that the Indonesian capital market adjusted to the policy information in a gradual manner rather than through an immediate price response, implying that the market has not fully exhibited the characteristics of semi-strong form efficiency.