This move was in line with market expectations, although the path forward is less certain. The Fed has made at least one more rate cut next year and noted increased risks to employment in announcing the move on Wednesday. Markets had assigned an 87% probability of a rate cut, driven largely by recent comments from New York Fed President John Williams in support of what he called an “insurance move” to ease the economy.
Although US inflation has eased from last year’s highs, it remains above the Fed’s 2% target. Job growth has slowed, but remains resilient enough to complicate the Fed’s debate over how fast growth should move.
The shutdown meant fewer data points for policymakers, making markets even more sensitive to policy signals. The uncertainty over who will succeed Fed Chairman Jerome Powell next year adds an extra layer of volatility.
Despite calls for deeper cuts from some Trump nominees on the Fed board, officials such as Kansas City Fed President Jeffrey Schmid and Vice Chairman Philip Jefferson have urged caution, highlighting persistent inflation and wage pressures. That division shaped today’s decision and the Fed’s future guidance. Divisions within the Fed widened when three officials voted against the modest cut. Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid tried to keep interest rates unchanged. Fed Governor Stephen Miran supported a larger cut of half a percentage point.
A clear sign of the Fed’s divisions was the wide range of cuts that the nineteen members of the Fed’s rate-setting committee had planned for 2026. Seven of them expected no cuts next year. while eight predict the central bank will make two or more cuts. Four supported only one. Only 12 of the 19 members vote on tariff decisions.
India impact
For India, the consequences are immediate. A softer US dollar and lower global interest rates could support foreign inflows; an aggressive attitude could do the opposite. The rupee has been under pressure in recent weeks, due to both domestic trade concerns and global risk aversion, coupled with uncertain Fed policy.
Nachiketa Sawrikar, fund manager at Artha Bharat Global Multiplier Fund, said global policy uncertainty is already contributing to tighter financial conditions. “The higher interest rate environment and changing policy expectations have tightened financial conditions, weighed on asset valuations and increased volatility in interest rate-sensitive sectors. The delay in the India-US trade deal adds to uncertainty and puts pressure on the rupee.”
He added that FII flows are at risk in the near term, which could weigh on Indian equity and debt markets, while gold is likely to remain supported.
Indian markets are expected to closely monitor global signals for the rest of the week. With the Fed’s position clearer and the political noise still high, traders will focus on incoming US inflation numbers, employment data and guidance from Powell on how long the Fed plans to remain in watch-and-wait mode.
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