Fed Powell’s Hawkish Tone: Here’s How Markets Reacted

The US Federal Open Market Committee delivered a 25 basis point (bps) cut, bringing the Fed Funds Target range down to 3.75–4.00%—a widely expected move. Markets had priced in another 0.25% cut in December; however, hopes of this move dampened after Fed Chair Jerome Powell signaled strong resistance to further rate reductions.

“In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December,” Powell said during the post-meeting press conference. “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”

The FOMC members did not vote unanimously for the cut at the latest policy announcement early Thursday. Federal Reserve Governor Stephen Miran voted for a 50 bps cut, while Federal Reserve Bank of Kansas City head Jeffrey Schmid voted for the status quo.

Rupee Hit Sharply Due to Fed’s Hawkish Pivot

The Indian rupee fell sharply against the US dollar on Thursday and hit a two-week low as foreign portfolio investors withdrew funds from domestic markets. The rupee ended at 88.70 a dollar, down 0.6%, after falling sharply to 88.73. State-owned banks likely sold dollars on behalf of the Reserve Bank of India to limit the pace of the rupee’s fall, traders said.

“Apart from this, Trump and Xi agreed on broad parameters without actually signing a deal. This also spooked the world markets,” Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors LLP, said in a note.

Gold Shines Brighter After Fed Cut

Gold prices shot up 2% on Thursday, driven by weakness in the dollar after the Fed’s policy announcement, as investors remained uncertain about the US-China trade deal. Spot gold rose 1.9% to $4,004.75 per ounce. Gold acts as a safe-haven asset during a low-interest-rate environment and during economic uncertainties.

Greenback Eases on Cautious Signal

The US dollar eased slightly on Thursday following the cautious tone of the US Fed, which signaled the latest rate cut would be the last policy easing of the year. According to the CME FedWatch Tool, Fed Funds futures traders still see no possibility of a further reduction in interest rates at the next policy meeting. Traders saw over a 66% probability for one more cut in December until a day ago.

US Treasury Yields Rise, Affect India Bonds

US Treasury yields rose despite the quarter-percentage-point cut, as expectations of a December cut faded, leading traders to reprice their bets on government bonds. The US 10-year benchmark Treasury yield rose 3.5 bps to 4.018% after the Fed policy. Meanwhile, India’s G-sec market was dragged in early trade on Thursday due to the rise in US yields.

“From the Indian bond market’s perspective, focus now shifts to trade negotiations between India and the US, the extent of INR depreciation, and the RBI’s liquidity management approach,” Naval Kagalwala, Chief Operating Officer and Head of Products at Shriram Wealth Limited, said in a note.

India Stocks Down as Investors Await Clarity

India’s benchmark stock indices, the Nifty50 and the Sensex, ended in the red as investors awaited further clarity on the future of the Fed’s rate outlook. This further weighed on investor sentiment, dampening risk appetite for emerging markets and triggering foreign fund outflows. The Sensex and the broader Nifty ended 0.7% lower from their previous close.

Implications for India

The latest policy decision by the US Federal Reserve provides more space for the RBI to cut the repo rate, reports said. Market participants expect the RBI’s Monetary Policy Committee to consider another rate cut in December if domestic inflation remains under the central bank’s target range and global conditions are favorable.

“We expect the RBI to cut rates by 25 bps in Dec’25, supported by benign inflation and a favorable global backdrop. A second cut in early 2026 is likely if growth remains below aspirational levels and inflation is contained,” Motilal Oswal Financial Services said in a note.