The US Federal Reserve has lowered its benchmark interest rate for the second time this year, trimming it by 25 basis points to a target range of 3.75 to 4.00 per cent, even as Chair Jerome Powell cautioned investors against assuming another cut in December.
Speaking after the decision, Powell said the Federal Open Market Committee (FOMC) members were divided on the way forward. “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it, policy is not on a preset course,” he noted.
The latest move follows a 10–2 vote by the Committee, with one member pushing for a deeper cut of 50 basis points and another preferring to keep rates unchanged, the first such divergence in six years. The Fed’s decision comes amid elevated consumer inflation, with the CPI rising 3 per cent year-on-year in September, slightly higher than August’s 2.9 per cent.
However, the decision-making process has been complicated by the ongoing US federal government shutdown, which has halted the collection of several key economic indicators. Powell admitted that the central bank is now relying on private data to assess the economy, introducing further uncertainty ahead of December’s meeting.
Markets React Cautiously
The Indian stock market opened lower on Thursday, following weak sentiment in global markets, after the US Federal Reserve cut the interest rate by 25 bps, but Fed Chair Jerome Powell hinted at no further rate cut in December. The benchmark BSE Sensex was trading 351.59 points, or 0.41 per cent, lower at 84,645.54, while the NSE Nifty 50 was down 108.95 points, or 0.42 per cent, at 25,944.95. Bank Nifty also traded lower by 169.50 points, or 0.29 per cent, at 58,204.50.
Gold prices initially jumped but later pared gains as investors digested Powell’s remarks. Spot gold rose 0.3 per cent to USD 3,964.39 per ounce, after climbing as much as 2 per cent earlier, while US gold futures for December settled 0.4 per cent higher at USD 4,000.7 per ounce.
Bond markets also reflected Powell’s caution, with treasury yields edging higher, especially at the shorter end of the curve.
According to Naval Kagalwala, COO & Head, Products, Shriram Wealth, the Fed’s split decision underlines the current uncertainty. “Policy easing was largely along expected lines. However, yields edged higher after Powell noted that a further reduction in the upcoming meeting was not a foregone conclusion. The cautious approach stems from a clouded economic outlook and limited data due to the government shutdown,” he said.
Implications For India
Experts believe that the Fed’s rate move could open the door for the Reserve Bank of India (RBI) to follow suit in its next policy meeting.
Vishal Goenka, Co-Founder, IndiaBonds.com, said the decision gives the RBI room to act. “This is a clear green lighting for RBI to cut repo rate in its next meeting in early December. For proper transmission of earlier rate cuts to come through the banking sector, a flatter and lower long-end yield curve is required. With the US cutting rates, RBI is likely to move in the same direction, making long-end government bonds attractive,” he explained.
Nachiketa Sawrikar, Fund Manager, Artha Bharat Global Multiplier Fund, said the latest rate cut aligns with expectations and could be followed by another in December. “More importantly, the Fed signalled an additional rate cut in December, which would bring the Federal Funds Rate down to 3.625 per cent by year-end. The US economy needs these cuts as employment and consumer spending are weakening due to tariffs,” he observed.
He added that lower US rates often trigger capital shifts from safe assets to emerging markets, which could benefit India. “Indian markets have already rallied in anticipation of stronger inflows. With India’s economy performing well and a potential India–US trade deal on the horizon, the country stands to gain from easing US rates,” he said.
Outlook For Markets
According to Om Ghawalkar, Market Analyst, Share.Market, the Fed’s rate move reflects a proactive stance to prevent a slowdown. “This isn’t panic mode, but a proactive nudge to keep recession at bay in a choppy labour market,” he said.
He added that the move could have ripple effects on emerging markets, including India. “A weaker dollar and cheaper global borrowing could draw foreign cash into equities and bonds. Indian stocks might see a short-term lift from FII inflows, especially in IT and pharma sectors linked to US demand,” Ghawalkar said.
He further noted that while lower yields make corporate debt more attractive, RBI may need to balance rupee stability with growth, possibly through liquidity tools like CRR reductions instead of aggressive rate cuts.
As global markets adjust to the Fed’s cautious easing, all eyes now turn to December — a meeting that could determine not just the direction of US policy, but also the pace at which emerging economies like India align their monetary strategies. |
