The US Federal Reserve maintained a status quo on interest rates on Wednesday, 28 October, in sync with what market participants and experts expected, even as the central bank said inflation remains elevated while economic activity growing strongly.
The Federal Open Market Committee (FOMC) decided to maintain the target range for the federal funds rate at 3.75% to 4%, which was raised to this level on 16 September this year, marking the first US Fed interest rate hike since 2023.
The FOMC approved the policy decision by a 10 – 2 vote, with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting in favor of a 25-basis-point rate hike.
“Economic activity is expanding at a strong pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little,” the FOMC statement read.
“Inflation remains elevated. The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee’s 2% goal.”
How can US Fed FOMC meeting outcome impact Indian stock market?
The Federal Reserve’s policy decision is unlikely to have any impact on the Indian stock market as the policy decision avoided any negative surprise by keeping interest rates steady.
Due to a status quo on rates, the market’s focus is on elevated oil prices and rising bond yields in the US, both major negatives for the Indian stock market.
“A pause is already discounted by the market and, therefore, is unlikely to have any impact. A positive trend in the market is that value buying is emerging since many segments of the market are becoming attractively valued,” said V K Vijayakumar, Chief Investment Strategist, Geojit Investments.
G Chokkalingam, the founder and head of research at Equinomics Research, has similar views.
“The US Fed’s policy decision is unlikely to impact the market significantly because it has already corrected significantly. The bigger concern is crude oil prices. With Brent crude at $115 per barrel, it would be a much bigger pain for India than the impact of rising US bond yields,” said Chokkalingam.
Vinit Bolinjkar, the head of research at Ventura, underscored that the message matters more than the decision itself.
“A pause is a delay, not a change in direction, so the Fed’s data-dependent stance still matters. India’s own drivers, such as crude oil, geopolitical tensions and quarterly earnings, matter just as much for the market’s direction,” said Bolinjkar.
Ravi Singh, Chief Research Officer at Master Capital Services, noted that a pause may provide stability to global markets and support investor sentiment. However, Indian markets may see limited gains as the pause is already priced in. Foreign fund flows, crude oil prices and domestic earnings will remain key drivers.
Will Sensex, Nifty 50 rise?
The Fed’s policy decision did not have any material impact on Wall Street. Major indices, the S&P 500, Dow Jones, and Nasdaq were up with modest gains around 12:10 AM IST on 29 October after the central bank’s status quo on interest rates were announced.
On the other hand, the US 10-year bond yields rose to 5.046% from 4.993% in the previous session, which is a negative for emerging markets like India.
The Fed’s hawkish tone, higher oil prices, rising bond yields, and rupee’s weakness are strong headwinds that the domestic market is facing now. A pause on rate hikes is unlikely to offset these concerns.
“Even after the Fed’s pause on interest rates, the domestic market is unlikely to rise significantly, as oil is the single biggest concern. Unless oil prices show signs of falling by 5–10%, the market is unlikely to rise significantly,” Chokkalingam said.
Chokkalingam explained that foreign portfolio investors (FPIs) are selling Indian stocks for two reasons: First, a lot of money has gone into the primary market, and second, due to the rupee’s weakness.
“As long as the IPO boom continues, foreign investor selling in the secondary market is likely to persist. Also, as long as oil prices remain high, the outlook for the rupee will remain somewhat pessimistic. Therefore, foreign investor selling is likely to continue. With oil prices at these levels, India’s monthly oil import bill could be around $15–16 billion, making the outlook for the rupee quite pessimistic. Consequently, foreign investors are unlikely to return in significant numbers,” said Chokkalingam.
A pause in rate hikes is just a delay. Experts expect the Fed to increase rates in the next policy meeting in December. The market’s focus could be more on what is to come than what has been done.
“The committee is preparing markets for a December hike, as the incoming data on growth, employment, and inflation increasingly support the hawkish members. The new sentence at the end amounts to tacit forward guidance, and investors appear to be taking it in stride,” said Jeffrey Roach, Chief Economist for LPL Financial.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
