Following India’s Reserve Bank of India’s (RBI) surprise rate cut last week, the market has now turned to the US Federal Reserve’s FOMC meeting. The two-day policy meeting on December 9–10 is expected to influence market sentiment heading into 2026.
The Fed is widely expected to announce its third straight interest rate cut at its final meeting of the year on Wednesday. According to the CME FedWatch Tool, 30-day fed-funds futures are pricing in roughly an 87% chance of a 25-basis-point reduction.
Will the US Fed cut the rate in December 2025?
According to Akshat Garg, Head – Research & Product at Choice Wealth, with the Fed widely expected to deliver a small cut amid a divided committee, the real market driver will be Powell’s message on inflation and growth rather than the rate move itself.
Meanwhile, market analysts believe that the upcoming US Federal Reserve meeting could likely shape the mood in the Indian market over the next few sessions as the Fed’s outcome and forward guidance often influence the near-term direction in global markets.
“A likely 25-basis-point cut would ease U.S. bond yields and widen the yield spread for Indian bonds, which historically tends to tilt capital flows toward emerging markets such as India. However, the ultimate reaction will depend not only on the rate change but also on the Fed’s forward guidance. If the tone remains cautious or signals volatility ahead, the domestic market may respond with short-term caution, even if long-term prospects are intact.
If the Federal Reserve decides to hold rates, Indian equities could face a near-term drag as global capital will continue to favour other equity markets and fixed-income assets, particularly with the India–US yield gap already quite tight and the depreciating INR. With little immediate incentive for investors to rotate money, both equity and debt markets in India may experience some softness,” said Ravi Singh, Chief Research Officer from Master Capital Services.
How US Fed meeting likely to impact the Indian stock market?
Ross Maxwell, Global Strategy Operations Lead, VT Markets, anticipates that the outcome of this month’s FED meeting is likely to significantly influence the Indian stock market because global investors closely track US monetary policy to determine risk sentiment and base their future decisions. At a time when the Fed is divided on how to proceed, it is likely to bring volatility to the global markets.
“IF the FED decides to cut interest rates or adopts a dovish stance, it generally boosts global risk appetite, encouraging foreign institutional investors (FIIs) to increase allocations to emerging markets like India. These inflows will often strengthen the rupee and support equity valuations. However, if the FED hints at a prolonged period of tight monetary policy, global yields tend to rise, making US assets more attractive relative to emerging-market investments. This can trigger FII outflows from Indian equities, weaken the rupee, and put pressure on sectors dependent on foreign capital,” Maxwell said.
He further explained that even if there is no actual rate change, the Fed’s commentary guides market expectations and can impact Indian indices, and traders should listen carefully to the tone of the communication just as much, if not more than the rate decision itself.
(This is a developing story)
Disclaimer: This story is for educational purposes only. Please consult with an investment advisor before making any investment decisions.
