In the stock markets, what lies ahead often matters more than what has already been done. If this sounds perplexing, consider the US Federal Reserve’s policy decision on December 18. The Fed lowered benchmark interest rates for the third time in a row, cutting by 25 basis points. Yet, major markets across the globe tumbled. Why? Because investors responded not to the Fed’s action but to its future trajectory.
The US central bank has projected only two more rate cuts of a quarter-percentage point by the end of 2025 as against the market’s expectations of three or four rate cuts.
With the December rate cuts, the US Federal Reserve has lowered rates by a full percentage point in 2024. The US central bank has set its short-term borrowing rate target at 4.25 cent to 4.50 per cent. The revised projections indicate that by the end of 2025, this rate could fall to 3.75 per cent to 4 per cent.
Stock markets were disappointed with the Fed’s projection. In the US, the S&P 500 and Nasdaq crashed 3 percent. Indian stock market benchmarks, the Sensex and the Nifty 50, suffered losses of a per cent each. European markets also reacted sharply, with CAC, DAX, and FTSE indices plunging up to 2 per cent.
US Fed revises rate cut projections: What it means for Indian stock market?
Experts believe that a hawkish Fed is negative for the Indian stock market, but they don’t expect it to cause major turmoil….
