The US Federal Reserve announcing a 50 basis points (bps) rate cut did not go down well with US stock investors, as Dow Jones and S&500 erased their initial gains to settle lower overnight amid fears of slowing of the US economy. Asian markets were mixed with Japan’s Nikkei 225 rallying 2.5 per cent but South Korea’s Kospi falling 0.80 per cent. Gift Nifty though was up 35.50 points or 0.14 per cent at 25,390, hinting at a positive start for the domestic market.
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“While markets were heavily pricing in a 50bps cut, this was still a surprise, as the Fed usually provides clear signalling before making an outsized cut. Fed Chair Powell justified this as the Fed’s “commitment to not being behind the curve”, rather than it being a case of easing being frontloaded. With this, however, he implied that the Fed had possibly kept rates higher for longer than needed,” Madhavi Arora, Lead – Economist at Emkay Global Financial Services Ltd.
Neither the post-meeting statement nor Fed Chair Jerome Powell’s presser gave guidance on the size or pace of rate cuts, though both indicated a bias towards further easing, Arora said.
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Powell, at times, pointed to the latest dot plot, where the median dot for this year points to two additional 25bp eases, and four more 25bp cuts next year.
“The market apparently heard Powell’s presser as hawkish, and we did too, though not surprisingly so. Powell was also keen to stress that the outsized easing was not in response to an imminent recession ahead. He stated that the committee has “growing confidence that strength in the labor market can be maintained”, and this aggressive move was a policy realignment to a soft landing scenario,” Arora said.
Raghvendra Nath, MD, Ladderup Wealth Management said the 50 bps cut was a surprise. “The market seems to be building another 50 bps rate cut in 2024 and a few further cuts in 2025. We feel that the Fed is not going to rush into reducing rates aggressively but act strictly based on data, as has been seen over the past two years,” Nath said.
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With the US accounting for nearly one-fourth of global GDP, its deceleration is bound to impact worldwide growth, and India will not be immune, Ajit Mishra – SVP, Research at Religare Broking Ltd said ahead of the rate cut.
“Market reactions will hinge on whether these cuts are perceived as a proactive boost for growth or a response to looming recession risks. Given the ongoing possibility of a US recession amid mixed economic data, investors must remain cautious, diversify their portfolios, and keep a close watch on key economic indicators,” he said.
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Mishra said as the US adjusts its monetary policy, emerging markets such as India could see changes in investment flows, trade dynamics, and overall economic sentiment.
“This interconnectedness highlights the need for Indian policymakers and investors to stay alert to US economic developments and their potential ripple effects on India’s growth trajectory,” he said.
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