Fed trims rates by 25 bps; dot-plot shows three cuts in 2025 and two more this year.
Powell says jobs market is weakening, while goods prices and tariffs keep inflation risks alive.
Move lifts risk appetite; housing, tech, small caps seen gaining, banks face margin strain.
The US Federal Reserve, on September 17, cut its benchmark interest rate by 25 basis points to 4.00–4.25%, its first rate cut since December 2024 and the first under President Donald Trump’s second term.
The Federal Open Market Committee voted 11–1 for the move, with new Governor Stephen Miran dissenting in favour of a half-point cut. Governors Michelle Bowman and Christopher Waller, who had earlier pushed for faster easing, supported the quarter-point trim this time.
In its statement, the Fed said economic growth moderated in the first half of the year, job gains slowed and unemployment edged up, even as inflation stayed elevated. The central bank flagged “downside risks to employment” as a key factor in its decision.
Furthermore, the Fed's updated 'dot-plot' showed policymakers now expect three rate cuts in 2025, up from two in June, with two more reductions likely before year-end. Inflation is forecast to end 2025 at 3.1%, unchanged from June, while growth estimates were raised modestly.
Fed Chair Jerome Powell described the policy outcome as a 'risk-management cut,' highlighting that the labour market has softened more than desired.
“We don’t need it to soften anymore and don’t want it to,” he said, while cautioning that goods prices remain a source of inflation pressure. Tariffs, he added, were acting more like a one-time shock than a sustained driver.
Markets welcomed the shift. “The Fed’s 25-bps cut marks a pivotal policy shift, lowering borrowing costs and reviving global risk appetite,” said Ponmudi R, CEO of Enrich Money.
“Growth-sensitive sectors such as housing, tech and small caps stand to benefit, though banks may face margin compression. A softer dollar also improves the prospects of stronger FII inflows into India. Coupled with consistent domestic support and stable technicals, this strengthens the case for continued market upside, so long as global cues remain favourable.”
Meanwhile, early trends on the Gift Nifty also hint towards a higher open for the domestic benchmarks, buoyed by the Fed’s rate cut. The Gift Nifty was trading with a premium of around 0.4% over the last close, suggesting an open in the green for the Nifty.
