US Federal Reserve's Bold Move: 50 Basis Point Rate Cut, Impacts Global Markets

Breaking eight consecutive steady rate meetings, the US Federal Reserve recently cut interest rates by 50 basis points. This decision, made in an uncertain economic landscape, spurred varied global investor reactions. Inflation concerns persist, but recent data indicates improving trends, affecting markets worldwide, including India's surging stock indices.

In a monumental shift from the recent steady stance on monetary policy, the US Federal Reserve slashed interest rates by 50 basis points during its latest review meeting. This move, anticipated by investors worldwide, marks the first rate cut after eight consecutive meetings of holding rates steady.

The Federal Reserve's monetary policy committee has adjusted the federal funds rate's target range to 4.75 to 5.0 percent. In a statement, the committee expressed increased confidence that inflation is sustainably trending towards the 2 percent target and highlighted that the risks to employment and inflation goals are balanced. The economic outlook remains uncertain, and the committee remains vigilant to potential risks on both sides of its dual mandate.

Chair Jerome Powell's recent remarks signaled the need for policy adjustments in response to aligning inflation rates, but he withheld specifics on the cut magnitude during the Jackson Hole Symposium. Investors were keenly awaiting the extent of the rate cut during the two-day policy review for new market cues.

Inflation, a significant concern for US policymakers, has shown signs of moderating with August data revealing a drop to 2.5 percent. The Federal Reserve's previous actions, including a 425 basis points increase in 2022 and 100 basis points in 2023, aimed at combating high inflation experienced during the COVID-19 pandemic. Interest rates were kept near zero during the pandemic, but have remained at restrictive levels since July 2023, contributing to stabilizing the retail inflation rate.

The monetary policy shift impacts global markets significantly. Foreign portfolio investors are increasingly shifting their investments to India, attracted by higher returns amid potential US rate cuts. This sentiment has bolstered Indian stock indices, which reached new heights amid strong domestic fundamentals. Indian markets are poised to react to the Federal Reserve's decisions as Sensex and Nifty closed marginally lower while awaiting the announcement.

(With inputs from agencies.)