Kolkata: The US Fed is meeting for its crucial two-day FOMC (Federal Open Market Committee) meeting to set interest rates on March 18-19. While the interest rates in the largest economy of the world is bound to be of great significance all over the world, this time it will be keenly watched by Indian investors since a change is expected to have serious repercussions for the Indian stock market, which has witnessed huge outflow of FII investment since October 2024, pulling down the broad indices such as Sensex 30 by as much as 14% from its September peak. The Indian market is already reeling under the apprehension of US President Donald Trump’s tariff decisions. The FMOC decision will be of special interest against this background.
There is widespread hope that the US Fed will keep key rates unchanged. The outcome of the meeting will be known only past midnight of March 19. Following the announcement, there will be a press conference where investors could have an explanation of the Fed chairman Jerome Powell’s outlook on the economy. His remark on inflation and the job market could also hold some indication on which way the future decisions could go.
Usually, a “hawkish stance” refers to an inclination for a tighter monetary policy, which could mean raising interest rates, which is usually resorted to for combating inflation. It could also mean decelerating the pace of economic growth. On the other hand, a dovish stance means a relatively relaxed monetary policy that often involves trimming interest rates paving the way for cheaper funds in the system. It is usually resorted to by policymakers for stimulating growth rate in the economy creation of jobs etc. It could also come at the cost of slightly higher rates of inflation.
While it is predicted by many analysts in the US that the Fed chairman Jerome Powell could keep the interest rate unchanged at 4.25-4.50% range, a few analysts also believe that there could be a slim chance of a rate cut. It could be mentioned that US President Donald Trump, a career businessman, is in favour of low interest rates.
Hours before the US Fed decision is known, one thing is pretty certain. If the FOMC decides to trim rates, it could spark a renewed buying of Indian equities by FIIs. “The valuations of Indian equities is far more realistic than they were in September last year when the FIIs started selling. A trimming of US rates would mean that expectation of returns from Indian markets could be brighter,” said Nilanjan Dey, investment strategist and director Wishlist Capital. However, a hawkish stance by the Fed could prompt FIIs to continue its current strategy with the Indian market.
The logic of analysts believing that the Fed will hold interest rates at the current level is the following: The US had an unemployment rate of 4% in January. The country’s GDP grew at 2.8% in 2024. Inflation was recorded at 3.1% in February while the Fed has a target of brining it down to 2%. The last factor could prompt the US central bank to hold rates at the current level, since trimming rates at this point could risk stoking inflation.
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