The Fed said that further changes to interest rates will depend on incoming data, the evolving economic outlook, and the balance of risks. Markets, however, expect a series of cuts through 2025 and into 2026, with some forecasts pointing to as many as six more 25 bps reductions by the end of next year. Much, however, hinges on the path of inflation and the resilience of the broader economy. But what does it mean for Indian equities?
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Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities, said that the Fed is attempting to strike a difficult balance. “The Fed chief voiced concerns about softening in the labour market, which prompted them to cut rates. However, he also voiced concerns about the impact tariffs are having on the prices of goods, which will eventually affect consumers’ wallets,” he said. He further added that they believe that the Fed is walking a tight rope of balancing growth and inflation. “So far the corporations have been slow in passing the tariff hikes to consumers. If they delay too much then that will affect their profitability. If they pass on the costs, then it will lead to inflation. Both these scenarios are not good for the markets. But why bother now when you can worry about it later,” he said.
From an Indian perspective, Deepak Agarwal, CIO-Debt at Kotak Mutual Fund, highlighted that the Fed’s guidance could have implications for domestic monetary policy. “Fed action seems to be prioritising growth. FOMC reduced rates by 25 bps and is guiding for 50 bps more rate cuts in CY 2025. This is despite both growth and Core CPI being revised higher for Q4 CY 2026. The recent spike in the unemployment rate seems to be the main driver for the FOMC guidance. For the time being, the market is happy that the FOMC is willing to ease despite inflation projections being revised higher. The yield curve in the US is likely to get steeper. Fed rate cuts and lower inflation due to GST cuts increases the odds of RBI rate cut in October 2025,” he said.
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“The Fed chief Jerome Powell described the 25 bp rate cut as “risk management cut”. The focus of the Fed commentary is the uncertainty surrounding economic activity, unemployment and inflation. Since the labour market is cooling and the GDP growth projection for 2025 is only 1.6%, perhaps two more cuts are possible this year even though the Fed chief categorically stated that “ the policy is not on preset path.” The softening interest rate scenario is favourable for the market to remain bullish,” V K Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd, said.Ross Maxwell, Global Strategy Lead at VT Markets, stressed that Powell’s comments after the meeting were more telling than the rate cut itself. “Powell mentioned that policy decisions remain challenging, and the committee members are still split on further rate cuts, with 10 out of 19 policy makers seeing two or more rate cuts this year. Powell recognised that downside risks to the labour market have risen, where supply has outstripped demand, citing AI as one of the reasons for slower hiring. Inflation is still a concern, with costs resulting from tariffs still expected to be passed onto the consumer. Financial markets are likely to welcome the rate cut in the near term, as lower borrowing costs ease pressure on households and businesses. Equity markets may see short-term support, though bond yields could remain volatile as investors weigh growth concerns against inflation risks,” he said.
With Powell acknowledging the split within the committee and inflationary pressures from tariffs still looming, analysts believe the Fed’s policy path will remain data-dependent.
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