Sign In
By signing in or creating an account, you agree with Associated Broadcasting Company's Terms & Conditions and Privacy Policy.
By signing in or creating an account, you agree with Associated Broadcasting Company's Terms & Conditions and Privacy Policy.
Kolkata: US Fed chair Jerome Powell announced the third rate cut in succession by the central bank late on Wednesday night, spreading cheer among analysts who interpret is as a positive development for the Indian stock markets currently witnessing outflows by foreign investors. Another big positive impact that can result from a possible reversal of the FII outflows can be the impact on he Indian rupee which has recently breached the psychologically important barrier of 90 against the US Dollar.
"The Fed’s December cut to 3.50-3.75%, its third 25 bps reduction in a row, signals a pause in the easing cycle, with inflation still elevated and policymakers cautious about potential tariff-related pressures. For India, while lower U.S. rates should ease capital flow pressures, the INR depreciation of around 4.9% YTD underscores market scepticism that Fed cuts alone can offset structural headwinds from Trump tariffs and elevated U.S. Treasury yields. We expect the INR to remain below 90/USD for the rest of 2025 and gain strength through 2026 to reach around 86/USD by the end of next year," said Rajeev Sharan, head -- criteria, Model development & Research Brickwork Ratings.
However, there is an important qualification too. While announcing the 25 basis point cut, Powell also signaled that the central bank has done its bit to brig down the cost of funds and rate cuts might not be frequent in 2026. In fact, he also signalled possibly one cut in 2026. If investors attach too much importance to this stance, it would not do good to the mood of the investors.
"The key question is whether the Fed sustains further cuts in 2026. Any pivot toward a prolonged pause or hawkish stance could revive dollar strength, deepen rupee depreciation, and trigger rating downgrades for India's externally vulnerable sectors," said Sharan. In September and October this year, the US Fed delivered rate cuts of 25 basis points each.
Another point to note is that Powell's term at the helm of the US central bank ends on May 15, 2026 and the US President is keen to replace the 'unbending' Powell with someone who would go for more frequent and deeper cuts. This time too, Trump expressed his dissatisfaction at the 25 basis point-cut and said that he wanted at least double that rate.
Jeffrey Roach, chief economist for LPL Financial, told the media that the next rate cut by the US Fed could come in Q2 of 2026 (April-June). "Projections with stronger growth and lower unemployment suggest the Fed will remain committed to bringing inflation down. Investors should expect the Fed to remain on hold in Q1, especially if the economy responds to the tailwinds from fiscal and policy support. The first cut next year may come in Q2," Roach was quoted as saying.
