Fed Cuts Interest Rates by 0.25% What It Means for Global and Indian Markets

 

The U.S. Federal Reserve’s recent decision to cut its benchmark interest rate by 0.25% to a range of 4.25%–4.50% has sent ripples through global financial markets. While the move was widely expected, the Fed’s unexpected projection of fewer rate cuts in 2025 unsettled investors, triggering a sharp sell-off in equities worldwide.

In its latest economic outlook, the Fed reduced its expected number of quarter-point cuts in 2025 from four to just two, indicating that higher interest rates may persist longer than previously anticipated. This shift has amplified concerns about the pace of global economic recovery.

Fed Chair Jerome Powell noted that inflation has "eased significantly" but remains "somewhat elevated" compared to the central bank’s 2% target. Despite optimism about the U.S. economy, Powell emphasized the Fed is nearing the end of its current rate-cutting cycle.

Global Market Reactions

Wall Street reacted sharply to the Fed’s announcement, with all three major indices—Dow Jones, S&P 500, and Nasdaq - recording their steepest single-day losses in months. U.S. Treasury yields surged as investors recalibrated their expectations for prolonged higher interest rates.

Asian markets mirrored the negative sentiment, with key indices trading lower. The Gift Nifty, an indicator of Indian market trends, dropped to around 23,935, signaling a gap-down opening of approximately 320 points below the previous close of Nifty futures.

Impact on Sensex and Nifty

India’s benchmark indices, Sensex and Nifty 50, are poised to follow global trends and open in the red. Market participants are cautious, as the Fed’s slower pace of easing adds to existing concerns over inflation and global economic uncertainties.

“Bullish sentiments took a hit after the Fed revised its outlook for 2025 rate cuts. While the 25-basis-point rate cut was anticipated, the reduced projections for future cuts have dampened market sentiment. Nifty’s 200-day moving average of 23,816 could come under pressure as indices brace for a negative start,” noted Mehta Equities in their market commentary.

What to Expect

Investors in Indian equities will keep a close watch on global cues, particularly the performance of U.S. stock futures and Asian markets. The impact of the Fed’s decision on foreign institutional investors (FIIs) will be a critical factor influencing market direction.

Although the Fed’s latest move signals an eventual end to its rate-cutting cycle, the cautious tone has created uncertainty over the trajectory of global economic recovery. Dalal Street, already grappling with a downturn in recent sessions, extended losses on Wednesday, heightening concerns about the year-end performance of key indices like the S&P BSE Sensex and NSE Nifty 50.

As markets navigate this evolving economic landscape, investors are likely to remain on edge, assessing the implications of sustained higher rates on growth and investment sentiment.

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