Fed Rate Cuts: The US Federal Reserve on Wednesday cut its key interest rate by 0.25 points for the third consecutive time, but also indicated that interest rates may remain unchanged in the coming months.
Federal Reserve Chairman Jerome Powell said in a press conference that the Fed will not cut rates further in the coming months while evaluating the health of the economy. Meanwhile, Fed officials also indicated that they expect to reduce rates only once next year. On Wednesday, the Federal Open Market Committee (FOMC), the policy making committee of the Fed, has cut the overnight lending rate by 0.25 points. With this decision, the interest rate has come down from 3.5 percent to 3.75 percent, which is the lowest in almost three years.
Trump can criticize
After a two-day long meeting, Jerome Powell indicated that the Fed may avoid cutting interest rates in the coming months until the health of the economy is evaluated. US President Donald Trump may criticize this decision of the Fed because he was expecting further cuts in interest rates. The market had been expecting the Fed Reserve to cut interest rates for a long time, but since the cut took place, the Fed’s stance remained strict, hence it is being called a ‘hawkish cut’.
mutual differences within the Fed
Powell said that in the coming time, Fed officials will keep the focus on the performance of the economy. During this time it will be seen how much the economy is developing. The chairman also said that the Fed’s key interest rate is near a level that neither restricts nor stimulates the economy.
The most special thing about this decision was that three Fed officials voted against this decision, which is the highest in the last six years. Generally, Fed members work with mutual consent. Two officials voted for no change in rates, while Fed Governor Stephen Miron, appointed by Trump in September, voted for a half-point cut. This clearly reflects the growing differences within the Fed.
What will be the impact on Indian stock market?
The effect of Fed Reserve’s rate cut can also be seen on the Indian stock market. This may give a boost to rate sensitive stocks. Its effect can be seen on shares of IT companies, FMCG, oil companies and financial stocks.
Interest rate cut, but this strict stance of the Federal Reserve can affect the movement of rupee and the flow of foreign investors (FIIs). If interest rates in America remain high for a long time, then foreign investors may become less interested in Indian stock markets. Due to this, there is a sequence of ups and downs in the stock market.
However, India’s strong GDP growth and controlled inflation can prove helpful in controlling this pressure to some extent. This is also a signal for the RBI not to be hasty in making cuts so that it maintains a cautious stance in monetary policy keeping in mind the global conditions.
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