US Fed Rate Cut Expected to Boost Investment and Business Sentiment; Focus Shifts to India

Analysts welcomed the US Federal Reserve’s recent rate cut of 0.5 percentage points (50 bps), citing it as a positive move amidst a strengthening US economy with stable inflation. Attention now turns to India, which is currently the fastest-growing economy in the world.

Following the rate cut, the US dollar strengthened, creating downward pressure on gold and other safe-haven commodities.

Sanjeev Agrawal, President of the PHD Chamber of Commerce and Industry (PHDCCI), noted that the US economy is experiencing steady growth alongside slightly elevated yet manageable inflation levels. “We anticipate that this federal rate cut could lead to lower returns on equity and a rise in gold prices,” he explained.

Looking ahead, given the uncertain global economic landscape, Agrawal expects the US Fed to remain vigilant and adjust rates in response to inflation pressures and international developments.

The Fed’s decision to begin its easing cycle with a somewhat surprising 50 bps cut reflects Chair Jerome Powell’s commitment to staying ahead of potential economic shifts rather than reacting to an imminent recession.

Experts believe this move could prompt central banks in other economies to follow suit. Madhavi Arora, Chief Economist at Emkay Global Financial Services, suggested that the Reserve Bank of India (RBI) will likely focus on domestic conditions, predicting a potential rate cut by December. “An early cut seems unlikely, and we anticipate only modest reductions by both the Fed and RBI during this cycle,” she added.

While this rate cut signifies a shift in interest rates after more than four years, its ultimate impact on markets will depend on additional economic indicators, including labor rates, inflation, and unemployment.

Dhawal Ghanshyam Dhanani, Fund Manager at SAMCO Mutual Fund, pointed out that the US isn’t the only economy to cut rates, as the UK, Eurozone, and Canada have already begun similar cycles. “Historically, India has followed the US in interest rate pivots, and this time appears no different,” he noted.

Dhiraj Relli, MD and CEO of HDFC Securities, cautioned that while monetary policy changes may have limited influence on global market trends, geopolitical events and potential slowdowns in economies like China could shape market movements in the coming weeks. “US markets may attract more investments due to this development, while other markets could underperform. Although Indian markets appear somewhat overvalued for now, a quick sell-off seems unlikely,” he remarked.