US Federal Reserve did not make any change in interest rates, kept it stable at 4%; Relief to global markets from Jerome Powell’s statement

Washington/New York. The two-day Federal Open Market Committee (FOMC) meeting of the US Federal Reserve, which is holding the breath of global financial markets, has concluded. Making an official announcement after the meeting, Central Bank Chairman Jerome Powell said that there has been no change in the Federal Funds Rate (interest rates) and it has been maintained within the current range of 4.00%. This move by the Fed is being considered a balanced and cautious step amid fears of a recession in the global economy, sluggish US labor market data and inflationary pressures. This has come as a big relief for equity and debt markets around the world, as any unexpected rate hike was threatening to put severe pressure on international liquidity.

In the press conference held after releasing the policy statement, Federal Reserve Chairman Jerome Powell clarified that the central bank is closely analyzing the current economic data.

• Inflation and the 2% target: Powell said that although inflation has come down from its highest levels, it is still in the process of stabilizing near the Fed’s mandated long-term target of 2%. Unless there is complete confidence that inflation will move towards the target in a sustainable manner, the risk of aggressive rate cuts cannot be taken.

• Economic Growth and Job Market: Consumer spending in the US economy remains stable, but the pace of job creation (Non-Farm Payrolls) has become more balanced than before. In such a situation, by keeping the rates at 4%, the Fed wants to ensure that the economy does not get stuck in a recession (Hard Landing) and a ‘Soft Landing’ can be achieved.

The Federal Reserve’s decision not to raise interest rates had an immediate positive impact on international financial markets:

1. Stability in Wall Street: After the announcement of the decision, US benchmark indices S&P 500, Nasdaq and Dow Jones witnessed recovery from lower levels and tech stocks gained strength.

2. Fall in US bond yields: There was a temporary softening in the 10-year US Treasury bond yield, which again increased investors’ attraction towards riskier assets (equities).

3. Greenness in Asian markets: Tokyo’s Nikkei 225, Hong Kong’s Hang Seng and Singapore’s Straits Times Index were seen trading on a positive note, suggesting that immediate fears of huge dollar outflows from Asian funds have passed.

This decision of the Federal Reserve will have a multi-dimensional impact on the Indian domestic economy, the policy of the Reserve Bank of India (RBI) and Dalal Street (Sensex & Nifty):

• Curb on selling by foreign institutional investors (FIIs): For the last few trading sessions, foreign investors were continuously selling in the Indian equity market. Due to Fed not increasing rates and stability in US bond yields, the pace of heavy selling by foreign investors may slow down, which will support the domestic market.

• Balance of Rupee and Crude Oil: Easing pressure on the US Dollar Index (DXY) will strengthen the Indian Rupee (INR) against the Dollar. A strong rupee will help India control the import bill of crude oil and electronics.

• RBI will get relief in policy: The Monetary Policy Committee (MPC) of the Reserve Bank of India will now have more autonomy to take decisions based on domestic priorities—such as economic growth and post-festive demand trends—in its upcoming review meetings. Due to stability in Fed rates, India will not face any sudden pressure on rates at present.

After this ‘pause’ of the Federal Reserve, now the attention of global analysts has turned to the US inflation and GDP data to be released in the coming months, which will decide when the path will be opened for the first cut in rates in early 2027.