The Impact of the Federal Reserve’s Interest Rate Hikes on Foreign Investment Flows in the Indonesian Stock Market

Abstract

This study examines the impact of the U.S. Federal Reserve’s interest rate hikes on foreign investment flows in the Indonesian stock market during the 2024–2025 period. The Fed’s policy of maintaining high interest rates to combat inflation has triggered capital outflows from emerging markets, including Indonesia. This research analyzes how such monetary tightening affects the Jakarta Composite Index (JCI), the rupiah exchange rate, and the performance of key sectors on the Indonesia Stock Exchange, particularly banking and technology. A quantitative approach is employed using regression analysis and time series data, with secondary data sourced from Bank Indonesia, the Indonesia Stock Exchange, and Bloomberg. The findings aim to deepen understanding of the Indonesian market’s sensitivity to global monetary dynamics and provide policy recommendations for financial authorities and investors in navigating
market volatility driven by global interest rate shifts.