Stock investors are eyeing a 25 basis points Federal Reserve rate cut, as the US central bank concludes its two-day policy review on Wednesday. Ahead of the rate cut decision, the US dollar index hit its 8-week lows. Dollar has historically shown inverse relationship with India and other emerging market (EM) equities.
Despite the dovish revision to US PCE, August data suggested broadening price pressure from tariffs as well as sticky elevated inflation in core services, Nomura India said. This brokerage expects the FOMC to cut rates 25 basis points today.
“The economic projections, dot plot, and press conference will likely emphasise that this is an ‘insurance cut’, with the pace of easing likely to remain gradual. The median 2025 dot will likely remain unchanged, signaling just two cuts this year,” Nomura said.
Markets are pricing in a 25-basis-point cut at the conclusion of the two-day Federal Open Market Committee (FOMC) meeting on Wednesday, responding to labour market deterioration shown in recent economic data, said Devarsh Vakil, Head of Prime Research at HDFC Securities.
Vakil said while a 25 basis-point cut appears certain, markets will scrutinise the accompanying statement and officials’ economic projections for guidance on the rate outlook.
“Traders anticipate an additional 25 basis-point reduction at the Fed’s October and December meetings, though Chair Jerome Powell will likely emphasise that future cuts depend on incoming economic data,” Vakil said.
US President Donald Trump has called for Fed Chair Jerome Powell to enact a bigger cut its benchmark interest rates, ICICI Securities said. It noted that US 10-year treasury yield remained near its five-month lows ahead of the US Fed policy.
A higher probability of 25 basis points rate cut and growing bets of 75 bps rate cut in this year weighed on the yields, it said.
Indian equities have underperformed emerging marker peers amid sustained FPI outflows (Rs 1,40,730 crore so far in 2025), thanks to stretched valuations and steeper tariff headwinds. Despite a weaker dollar, the rupee hit a record low recently, with the RBI limiting intervention and unwinding forward positions to preserve reserves while letting depreciation aid exports. Analysts noted capital flows remain muted, while the current account remains manageable despite weaker merchandise exports from tariff pressures.
“Indian markets are expected to open slightly softer but remain supported by sectors like technology and banking, with optimism tied to the Fed’s anticipated actions potentially sparking a recovery,” said Ponmudi R, CEO of Enrich Money.
JPMorgan said it is bullish on emerging markets, as it sees a rate cut, with futures pricing in 26 basis points easing. whats
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