The US Federal Reserve made a significant move by cutting the benchmark interest rate by 50 basis points, marking its first reduction in four years. Led by Chairman Jerome Powell, this decision comes as the central bank aims to support a weakening job market and steer the economy towards a “soft landing,” curbing inflation without triggering a recession. The unexpected rate cut has triggered mixed reactions across global markets, with investors keenly observing the potential impacts on various sectors, including stocks, oil, and gold. This shift in monetary policy signals the Fed’s focus on balancing economic growth while managing inflationary pressures.
US Fed Meeting Key Highlights:
Rate Cut Announcement:
- The Federal Open Market Committee (FOMC) led by Chairman Jerome Powell announced a significant 50 basis points cut in the benchmark interest rate, bringing it down to 4.75-5%. This is the first rate cut in four years.
This decision comes after keeping rates at a 23-year high since July 2023, in a bid to combat inflation.
The cut is aimed at supporting the weakening job market and ensuring a “soft landing” to curb inflation without triggering a recession.
Market Reactions: - Wall Street’s main indexes slipped ahead of the announcement, with the Dow Jones shedding 100 points.
Oil prices fell by 1% before the Fed’s decision, with Brent crude trading at $73, facing resistance at $75.
European stocks dropped, and gold edged higher as markets anticipated the rate cut.
Economic Impact and Outlook: - Analysts suggest the Fed’s rate cut could bring down borrowing costs for US companies, stimulate growth, and possibly trigger a series of cuts extending into 2025.
The cut is expected to positively impact the Indian market, with sectors like IT, BFSI, Auto, and Realty potentially benefiting.
The Fed’s decision is also anticipated to bring down the US unemployment rate, which dropped to 4.2% in August, signalling a focus on supporting the labour market.
Global Perspective: - The decision could lead to a temporary rally in the Indian stock market and might strengthen the Indian rupee.
AI stocks are expected to bounce higher due to the Fed’s easing, with lower interest rates benefiting companies in capital-intensive sectors like AI.
Historical Context: - This rate cut marks a shift from the Fed’s aggressive rate hike campaign over the past year to combat the worst inflation in four decades.
The market will now be closely watching how the Fed navigates this new phase and whether it successfully avoids triggering a recession.
This development indicates a shift in the US Federal Reserve’s monetary policy approach, aiming to balance economic growth with inflation control. The market reactions and future rate decisions will be closely monitored by investors and policymakers globally.
