Why Did The U.S. Fed Cut Rates And How Will It Impact Global Markets?
The Federal Reserve’s latest policy decision has sent ripples across global financial markets. With a 25 bps rate cut, the Fed has signaled a dovish pivot at a time when unemployment pressures are rising and inflation remains elevated. This move is expected to reshape investor sentiment across asset classes — from U.S. equities and bonds to commodities like gold. Understanding the implications of this shift is crucial for traders and long-term investors alike.
What Exactly Did The Fed Announce?
The Fed also revised its economic projections. Policymakers now expect unemployment to rise to 4.5% in 2025 while GDP growth is revised upward to 1.6%. Inflation, however, remains a challenge, with the Fed seeing core PCE at 3.1% in 2025. Markets immediately reacted — gold surged past $3700/oz, U.S. yields dropped below 4%, and equities showed sector-specific gains.
Why Did The Fed Cut Rates Despite Elevated Inflation?
Powell emphasized that the Fed’s dual mandate requires balancing inflation control with job creation. With payroll growth weakening, the Fed decided to act proactively. Powell described the cut as a “risk management cut,” meant to cushion the labor market before unemployment rises more sharply.
How Did Markets React To The Fed’s Move?
The broader takeaway is that investors now see the Fed as more willing to support growth even at the cost of tolerating slightly higher inflation. This is a significant shift compared to earlier when inflation control was the singular focus.
What Does This Mean For Indian Markets?
Traders should keep a close watch on the rupee-dollar movement and FIIs’ behavior in the equity and debt markets. A softer Fed stance may lend support to Indian indices, especially rate-sensitive sectors like banking and real estate.
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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
