The US Federal Reserve continued its journey towards softer interest rates by announcing a unanimous decision to cut the benchmark interest rate by 25 basis points (or quarter of a percentage point) on November 6 – the second successive trimming act after a 50-point cut in September. The decision brought the key rate down to the 4.5-4.75% range.
Significantly, the decision of the US central bank in September to reduce the interest rates was the first such act after 4 years. The rate cut was not effected for such a long time to allay any fears of inflation in the largest economy of the world. The US Fed follows a 2% rate of CPI-based inflation as a long-term policy.
US Fed follows Trump’s win
The rate cut decision on Thursday came immediately after the thumping victory of Republican candidate Donald Trump as the US president. Trump, a businessman, is known to favour lower interest rates, lower taxes and protectionist policies to uphold a “America First” principle. He had also been a critic of Jerome Powell, the chairman of the US Fed in the past.
Wall Street expectations were divided on whether the FOMC (Federal Open Market Committee) will opt for a rate cut this time. While some experts expected a trim, some other felt the FOMC will skip it in this meeting and take such a decision in December. The influential committee holds 8 meetings in a year to review the economic situation and take a decision on the prevailing interest rates.
US economic conditions and the way forward
The US Fed said in a statement that among the enabling conditions to lower the rates was the continuation of an easing inflation situation. While it inched towards the long-term goal of 2% rate, unemployment rates, too, remained low. Experts now think the Fed will trim rates by 50 basis points in December this year and 100 more basis points in 2025 and 50 basis points in 2026 – eventually reaching a level of 2.75-3.00%.
Will US Fed rate cut decision cheer Sensex, Nifty
Generally. any rate cut by the US Fed makes returns lower and less attractive in that economy in debt instruments to investors. This could drive foreign institutional investors to other emerging markets in search of better returns. If it happens, it could life the mood in Indian markets with Sensex and Nifty reacting positively on Friday, November 8, 2024.
What RBI governor hinted on rate cut
Speaking at an event, Reserve Bank of India (RBI) governor Shaktikanta Das hinted that there was no possibility of a immediate Repo Rate cut in India, principally due to inflation concerns. Moreover, since the GDP growth rate in India in expected to remain the fastest among major economies, there is no hurry for a rate cut in India.
While the US Fed followed up its September act with a further cut in policy rates on November 7, it remains to be seen whether the decision cheers the Indian indices Sensex and Nifty. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
