Jerome Powell’s last policy meeting as the chairman of the US Federal Reserve concluded on expected lines- the Federal Open Market Committee (FOMC) decided to keep benchmark interest rates unchanged at 3.5%–3.75% for the third consecutive policy given the persisting uncertainty due to the US-Iran conflict.
The FOMC voted 8-4 to hold the benchmark interest rate in a range steady and highlighted that inflation is elevated, reflecting the recent increase in global energy prices. Economic growth, however, remains in good shape, and the job market is stable.
Fed Chair Powell said it was his last meeting as the chairman, as his term expires on 15 May. He said he “will continue to serve as a governor for a period of time to be determined.”
The April policy meeting concluded on predicted lines, without any economic projections. Fresh economic projections or dot plot are expected in the next policy meeting in June, which will take place, most likely, under the leadership of Kevin Warsh, who has been picked by the US President Donald Trump to lead the Federal Reserve after Powell’s term ends.
US Fed policy: How can it impact the Indian stock market?
While the Fed Chair underscored that the US economy was in a solid state, he highlighted the increased inflationary risks due to higher energy prices.
There were no clear cues about the near-term trajectory of interest rates, as the FOCM will consider incoming data to adjust the monetary policy stance.
Experts believe the Fed’s policy decision will not have any material impact on the Indian stock market.
“The Fed’s decision is unlikely to influence the Indian market now. Indian economy and markets are holding reasonably well despite the energy crisis. However, if crude prices remain high for long, the downside risk to India’s growth and upside risk to inflation will increase. The market has, so far, not discounted this,” said VK Vijayakumar, chief investment strategist at Geojit Investments.
Debopam Chaudhuri, Chief Economist at Piramal Group, said that markets had already factored in a pause, so this decision is unlikely to have a big impact. Markets will continue to be driven mainly by geopolitical developments.
The S&P 500 and Nasdaq traded slightly lower, while the US dollar and the 10-year Treasury yields jumped over 1% to 4.42% after the Fed policy announcement. However, a surge in bond yields and the dollar appears to be more due to the oil price rise than the Fed’s policy decision.
Brent Crude prices jumped 8% to trade near $120 per barrel due to the stalled talks between the US and Iran and the continued blockage of the Strait of Hormuz.
According to Ajitabh Bharti, Executive Director and Co-founder, CapitalXB, for Indian investors, the Fed’s pause on interest rates is a double-edged sword.
“While it prevents a massive sell-off, the lack of a rate cut means foreign institutional investors (FPIs) might remain hesitant to move capital back into Indian equities until US yields soften,” said Bharti.
Vinit Bolinjkar, Head of Research at Ventura, highlighted that recent FOMC communications have signalled that energy-driven inflation could remain persistently elevated. This reinforces a ‘higher for longer’ rate narrative, creating near-term headwinds for the Indian stock market.
Elevated US rates continue to divert global capital toward US assets, sustaining the exodus of FPIs from Indian equities, said Bolinjkar.
The widening interest rate differential driven by the RBI’s cumulative 125 basis point cuts (bringing the repo rate to 5.25%), while the Fed remains on hold, has weighed heavily on the rupee. Coupled with high crude prices, this significantly expands India’s import bill and current account pressures, Bolinjkar highlighted.
Bolinjkar added that a hawkish Fed essentially locks the RBI’s hands and the central bank has limited room to pursue further domestic easing without risking additional currency volatility. This delays the much-anticipated relief for rate-sensitive sectors such as banking, real estate, and infrastructure, said Bolinjkar.
Experts say the Fed’s April policy could be a non-event for the Indian stock market as the focus is on the higher energy prices and the ongoing Q4 earnings season.
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Disclaimer: This story is for educational purposes only. 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.
