After more than four years, the US Federal Reserve has reduced its key interest rates by 0.25 percent, or 25 basis points, bringing them to a range of 4.75-5 percent. This significant cut is a departure from the Fed's previous stance of holding rates steady to control inflation, which has made loans less affordable for many Americans.

The decision was made during a two-day Federal Open Market Committee meeting led by US Fed Chair Jerome Powell. The committee's statement highlighted that inflation is approaching the 2 percent target and expressed confidence in achieving its job and inflation goals. Projections suggest that the Fed might lower rates by another 25 basis points by the end of 2024 and by an additional 50 basis points by 2025. Another potential cut of 25 basis points could occur in 2026, aiming for a target range of 2.75-3 percent.

The rate cut led to a positive reaction in the Indian stock market. IT stocks, which had been down, saw a recovery, and equity indices reached new highs. The Nifty 50 surged to 25,611.95 points, while the Sensex climbed to 83,773.61 points.

For Indians, the US rate cut could boost foreign fund inflows into India. Lower US interest rates might make US Treasury securities less attractive, encouraging investors to shift their investments to markets like India. This could drive up the value of Indian equities and debt markets.

In the Forex market, the Indian Rupee may experience increased demand and appreciation against the US dollar due to higher investment flows.

Economic Affairs Secretary Ajay Seth noted that the Fed's rate cut might not have a substantial impact on India's inflows. He mentioned that a 25 basis point reduction from a high level might not result in significant changes, advising to observe future developments.

This policy meeting is the final one before the November presidential elections in the US. Vice President Kamala Harris, the Democratic presidential candidate, supported the Fed's decision, emphasizing her focus on controlling prices. Former President Donald Trump, the Republican candidate, has criticized the Biden administration for high inflation and accused the Fed's rate cut of being politically motivated.

Trump has suggested raising tariffs on imports, which Harris counters by saying it would lead to higher product prices. The next Federal Reserve policy meeting is set for November 6-7, immediately following the presidential elections. Powell rejected Trump’s accusations of political interference, asserting that the Fed is committed to maximizing employment and ensuring price stability for all Americans.

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