Kolkata: The US Federal Reserve concluded a two-day has meting to announce that it is holding the key interest rates steady at 4.25%-4.5%, attributing the wait-and-watch attitude to economic uncertainty originating from the recent tariff war of Washington. Incidentally, US President Donald Trump, career businessman, has a well-known position in favour of lower interest rates.
If a rate cut was announced, it would have been a positive for the Indian stock markets since a lower rate encourages foreign investors to invest in emerging markets looking for better returns and the Indian market has been one of their preferred destinations over the past several months. On May 7, despite the heightened geo-political tension in this region after India struck terror camps in Pok and Pakistan, Sensex 30 closed at 80,746.78, up 106.71 points or 0.13%
“Uncertainty about economic outlook”
Concluding the meeting, the US Fed mentioned in a statement, “Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.” “The rate setting committee is attentive to the risks to both sides of its dual mandate,” it added. The risks mentioned were that of higher unemployment and inflation. Incidentally, economists are almost unanimous in their opinion that the higher tariffs imposed by the US could induce an all-round price rise of all goods and commodities in the US.
Perhaps reacting to the all-round pessimism about the US economy, the White House has delayed implementation of a large part of the trade tariffs by 90 days — till July 2025 — to engage into renegotiation of running trade deals.
Combined impact of rupee and no rate cut
The moot point now is how will the market behave when it opens for trading on Thursday (May 8)? On Wednesday, the Indian Rupee fell as much as 42 paisa against the US dollar, which is attributed to the heightened tension in Indo-Pak relations. A falling rupee usually impacts the sentiment of investors negatively. Whether the absence of a rate cut by the US Fed will add to the pressure remains to be seen.
However, there is already an ominous signal and that is the US economy could have contracted in Q1 by 2%, though unemployment was at a low. The UD Fed has a long term target of maintaining inflation at 2%. A contraction by the US economy, the largest in the world, has ominous signals for Indian companies that do business with American companies and sell their goods in that land.
(Disclaimer: This article is only meant to provide information. News9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds, precious metals, commodity, any form of alternative investment instruments and crypto assets.)
If the US Federal Reserve cuts interest rates, it is considered conducive for the Indian stock markets since it nudges the foreign investors to invest in emerging markets including India. Markets Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
