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Fed Rate Cut: America’s central bank has cut interest rates for the third consecutive time, but has maintained a strict stance. The Fed has also announced to buy treasury bonds again. There is little hope that the reduction in US interest rates will have much positive impact on the Indian stock market, because the Fed’s stance remains hawkish.
Fed Rate Cut: America’s central bank, the Federal Reserve, has cut its benchmark interest rate by 0.25 percent. After this decision, the new target range of the federal funds rate has become 3.5 to 3.75 percent. This is the lowest level in the last three years. This is the Fed’s third consecutive rate cut since September and this year the US central bank has reduced interest rates by 0.75 percent. The market was already expecting this decision, hence it was called ‘Hawkish Cut’, that is, the cut was made but the stance remained tough. From India’s perspective, the Fed’s strict stance can have a direct impact on the investment flow of foreign institutional investors (FIIs) and the movement of the rupee.
The Fed has increased GDP growth estimates for 2026. It has been increased by 0.50 percentage points from the September estimate to 2.3 percent. However, the Fed believes that inflation may remain above its 2 percent target until 2028. The inflation rate in September was 2.8 percent. This is certainly below the high level of a few years ago, but still well above the Fed’s target of 2 percent.
Fed will buy treasury bonds
The Fed made a big announcement that it will resume purchasing treasury securities. In the October meeting, the Fed had said that it would stop shrinking the balance sheet from this month. The Fed will buy $40 billion of Treasury bills starting Friday. After this, purchasing may remain at a high level for a few months and then it will be reduced. This decision has been taken amid fears of pressure in the overnight funding market.
What will be the impact on global markets?
There is a possibility of increased instability in global stock markets due to the recent decision of the Fed. Despite the cut in interest rates, the Fed’s tough stance, internal differences over policy and indications of further limited cuts may prove disappointing for equity investors. Due to bond yields remaining at high levels in America, there may be pressure on tech and growth stocks. Although repurchase of treasury bonds may provide liquidity support to the market in the short term, long-term investors may remain cautious for now.
Meaning of interest cut for India
From India’s perspective, the Fed’s strict stance can have a direct impact on the investment flow of foreign institutional investors (FIIs) and the movement of the rupee. If interest rates in the US remain high for a long time, capital inflows from emerging markets may weaken, causing volatility in the Indian stock market.
Despite this, India’s strong domestic economic growth and controlled inflation have the potential to balance this pressure to some extent. At the same time, there are also indications that RBI will not be hasty in cutting interest rates and will maintain a cautious monetary policy in view of the global situation.
