All Eyes On Powell: Fed Poised For First Rate Cut In 2025; What It Means For D-Street

After nine months of holding steady, the US Federal Reserve is poised to deliver its first interest rate cut, with markets almost fully pricing in a 25-basis-point move when the central bank announces its decision on Sept. 17.

The backdrop has turned fragile: the US economy added just 22,000 jobs in August, the weakest print since the pandemic rebound, while unemployment rose to its highest level in nearly four years. A string of downward revisions to earlier reports has further deepened concerns about labor market momentum.

President Donald Trump has repeatedly pressed Powell to cut rates, but the Fed has hesitated, wary of tariffs that could simultaneously dampen growth and stoke prices.

Powell himself acknowledged at Jackson Hole that risks are skewed: "In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside — a challenging situation."

Traders are betting overwhelmingly on a small cut. CME's FedWatch tool pegs the probability of a 25 basis points cut at 96%, with only a slim chance of a deeper 50 basis points move. The Fed's key rate currently sits between 4.25% and 4.5%.

Back home, Indian equities will be watching global cues closely. A Fed cut could offer further support to the current positive trend. The benchmark indices have risen in nine out of the last 10 trading sessions.

"The FOMC is under tremendous pressure by Trump to deliver a rate cut, so it is imminent, but inflation worries due to tariffs also weigh on the economy. Hence, the rate cut will be delivered in a staggered manner," said Kranthi Bathini, director of equity strategy at WealthMills Securities.

According to him, the move could be supportive for Indian financials and IT sectors, while also giving the RBI's MPC more room to consider rate reductions.

"Overall, the Fed cuts will act as a positive cue for markets worldwide, and the the Dalal Street will be no exception to it," the analyst added, suggesting that a likely uptick is to be seen in the subsequent trading sessions.

Will the rate cut have an impact on foreign institutional investors? Analysts say that the answer may lie in the Fed's guidance.

"All ears will be on guidance and way forward—an unexpected dovish guidance may create a melt-up scenario in the US and benefit cheap emerging markets like China and Korea," said Ankita Pathak, macro strategist and global equities fund advisor at Ionic Asset.

"On the other hand, a hawkish stance and limited scope of further policy action may spark a classic sell-on-news trade in the US," Pathak added.

Notably, FIIs have been net sellers of Indian equities in recent months, offloading shares worth Rs 34,993 crore in August. The exit came amid the escalating trade tensions with the US, with the Trump-led administration penalising India with tariffs up to 50%.

According to Bathini, the recent shift in the American administration's tone towards India—with Trump describing India as a valued partner and resuming the trade deal negotiations—could slow down the FPI outflow. This, along with the Fed rate cut, can curb the outflow, he suggested.