The US Federal Reserve (US Fed) has cut its benchmark interest rate by 0.25% to a range of 4.25-4.50%. The decision was made after a two-day meeting. Moreover, this was the eighth and final monetary policy decision by the US central bank for 2024. This is the third time in a row when US Federal Reserve Chair Jerome Powell and his team have lowered the federal funds rate. Furthermore, the rate cut got started in September, marking the first decrease in four years.
Notably, the US Federal Reserve has revised its interest rate forecast. They now expect only two quarter-percentage-point rate cuts by the end of 2025. Meanwhile, this is a notable reduction from its previous September estimate, which predicted four rate cuts.
“In considering the extent and timing of additional adjustments to the target range, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” said FOMC (Federal Open Market Committee) in its policy statement.
Furthermore, this is the final interest rate decision before President Joe Biden hands over the presidency to President-elect Donald Trump. Notably, Trump’s economic prospect includes major changes like tariff hikes and the deportation of millions of undocumented workers.
- Policymakers hiked their outlook for headline US inflation next year to 2.5%.
- They do not see it returning to 2% before 2027.
- FOMC members raised their outlook for growth in the US this year to 2.5%, and to 2.1% in 2025.
What US Fed Rate Cut Means For India’s Economy?
The Reserve Bank of India (RBI) may follow the Fed’s lead and cut interest rates, making borrowing cheaper in India. Furthermore, this rate cut may weaken the US dollar, causing the Indian Rupee to rise in terms of value. Likewise, a stronger rupee makes imports cheaper, which helps to lower down the inflation in India. The fed rate cut gives RBI room to cut interest rates in India as well.
When the US cuts interest rates, investors find investments in the US less appealing. As a result, global investors seek better returns in emerging markets like India, potentially leading to increased foreign investment. The increased foreign investment can boost up the stock market sentiments, leading to a rally.
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