“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job creation has slowed and the unemployment rate has increased but remains low. Inflation has continued to move toward the Committee’s 2 percent objective but remains somewhat elevated,” the Fed said in a statement.
After the announcement, Wall Street rose, with the Dow Jones up 120 points. The S&P 500 rose 0.4%, while the Nasdaq The composite index rose 0.6%. Both the 30-stock Dow Jones index and the broader market index hit new record highs following the central bank’s decision.
Looking ahead, the Fed said it will continue to monitor the implications of incoming information for the economic outlook.
“The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the achievement of the Committee’s objectives,” the statement said.
The committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. According to a median of Fed projections, interest rates are likely to be cut to a range of 4.25%-4.5% by the end of 2024 as inflation approaches the 2% target. By the end of 2025, policymakers anticipate a policy rate of 3.4%, implying an additional 100 basis point cuts next year.
Indian stocks, which ended a volatile session lower on Wednesday, are likely to react positively when trading resumes on Thursday.
“While the US interest rate easing has a positive directional effect for equities overall, “we need to keep in mind that interest rates are just one variable in a complex adaptive system that determines the direction of Indian equity markets,” said Anoop Vijaykumar, Investments and Research Director at Capitalmind.
Analysts said Fed action now would be data-dependent and unless growth data worsens significantly, subsequent policy action would be a 25 basis point cut.
“From the assumption that inflation is transitory to that interest rates will remain higher for longer, the Federal Reserve has gone a long way to meet market expectations. This rate cut will facilitate flows into emerging market assets with a weaker dollar and lower rates,” said Nilesh Shah, Managing Director, Kotak Mahindra AMC.
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