US Fed Rate Decision: Quarter-Point Rate Cut On Table But Slowdown Seen In 2025

The United States Federal Reserve is headed for another quarter-point rate cut, but they might slow down in the coming calendar year, according to Kotak Alternate Asset Managers' Lakshmi Iyer.

"The United States will see a slowdown in terms of rate cuts in 2025, as inflation has not completely abated and continues to grow," Iyer, who is the asset manager's whole-time director and chief executive officer of investment and strategy, told NDTV Profit. She also said that a 25 basis points rate cut on Dec. 18 is already baked-in to the markets.

The two-day Federal Open Market Committee meeting concludes on Wednesday. The Fed is expected to cut rates by 25 basis points, lowering the target range to 4.25-4.50%. Attention will also be on Powell's stance on future rate decisions. The following day will see the release of the final print for US third-quarter GDP, expected at 2.8%.

While sentiment in the US is relatively positive over the widely expected quarter-point rate cut, Iyer said that India's story in the second half of fiscal 2025 will not be as easily quantified.

"Capital expenditure will revive in the remainder of the year, but it will be a slow brew," she explained. "We saw a good kharif output, which will hopefully cool off food inflation, and a good rabi output will strengthen case for a February 2025 rate cut by the Reserve Bank of India," she added.

According to an earlier report by Emkay Global, capex slowdown in the first half was largely led by the elections and the monsoons. But unlike Iyer's 'slow brew' metaphor, Emkay expects a robust recovery in the second half of the year, with many projects now being bid out and execution likely to accelerate.

Commenting on China's stimulus push, she said that though the country is in a desperate attempt to revive its economy, its valuations are much better compared to that of India.

China’s politburo had earlier signaled certain measures to boost consumer demand, with senior government officials expressing strong pro-growth views, hinting at higher government spending and impending interest rate cuts.

While India has better governance and macros than China, foreign outflows from India will only slow down when valuations become bearable here, Iyer said.