After a gap of over four years, the US Federal Reserve has finally slashed key interest rates by 0.25 per cent or 50 basis points to 4.75-5 per cent range.
The latest cut is unusually large as the Fed panel put off cutting rates to tame inflation for years. However, this has made loans unaffordable for most Americans.
The decision was taken during the two-day meeting of the Federal Open Market Committee chaired by US Fed Chair Jerome Powell.
A statement released by the committee said the inflation is moving towards 2 per cent, pointing out that it is confident of attaining the goals set for jobs and inflation in the country. Going by report, the Fed rate could drop by another 50 basis points by 2024 end and 100 bps by 2025. 2026 could see another 50 bps slashed to hit the target of 2.75-2 per cent.
IT stocks which were bearish on Wednesday recovered on Thursday early morning trade, thanks to the US Federal Reserve rate cut. The equity benchmark indices also surged on Thursday morning and recorded lifetime peaks. Nifty 50 zoomed to 25,611.95 points while the Sensex leaped to 83,773.61.
How will US Fed rate cut impact Indians?
The Federal Reserve rate cut could increase foreign fund inflows to India. This is because a lower interest in US would make the local Treasury securities unattractive, pushing investors to bank on foreign security markets like India. This could in turn make the equities and debt markets bullish.
Another impact could be in Forex market as the Indian Rupee would see high demand with more investments and appreciation against the US dollar.
However, Economic Affairs Secretary Ajay Seth the Fed rate cut would not significantly impact inflows into India. He said it's a 50 bps cut from high level so it may not bring any significant changes. "We have to see how things develop going forward," Seth told reporters.
This is the last such policy meeting ahead of the November presidential elections. US Vice President Kamala Harris, who is the Democratic presidential candidate, welcomed the Federal Reserve's decision to slash rates, saying she was focused on keeping the prices down.
Former President Donald Trump, who is the Republican presidential candidate, has repeatedly blames the Joe Biden administration for letting inflation soar.
However, Harris has clapped back at Trump over his promise to raise tariffs on imports, which would in turn increase the prices of products.
The next policy meeting of the Federal Reserved is scheduled for November 6-7, right after the presidential elections. Trump has alleged that the latest move to lower rates amounts to political interference ahead of elections.
However, Powell denied Trump's charges, saying the Fed Reserve is not serving any politician, any political figure, any cause, or any issue. "It's just maximum employment and price stability on behalf of all Americans. And that's how the other central banks are set up, too," he added.
"We're not saying, 'mission accomplished' ... but I have to say, though, we're encouraged by the progress that we have made," said Powell. "The US economy is in a good place and our decision today is designed to keep it there."
