US Fed Rate Cut: What Does It Mean For Indian Markets? Here's All You Need To Know

The US Federal Reserve has issued a third consecutive rate cut, lowering the repo rate by 25 basis points to the range of 3.5-3.75%. This marks the lowest interest rate levels in three years.

However, the central bank remains unsure about the road ahead, with policymakers yet to find complete unanimity about rate cuts and the state of the economy.

Weakening job market has weighed on the Fed for quite some time now, but amid rising prices, US Fed reached a 9:3 consensus for a 25 bps rate cut.

US Fed's quarter percentage point rate cut certainly wasn't approved by Donald Trump, who went on to deride Jerome Powell as 'stiff' and a 'deadhead' while claiming that the rate cut could have 'at least been doubled'.

Indian markets will once again be a key focus area as market participants closely watch the spillover effect of the US Fed rate cut on emerging economies.

An early indicator is the GIFT Nifty, which is trading largely flat, indicating a muted open. Asian markets, on the other hand, are trading mixed.

Hang Seng is trading with gains of 0.76% as the US rate cuts lifts mood in the tech-heavy Hong Kong market. Nikkei and Shanghai markets, though, are trading in the red.

A rate cut in the US usually translates to cheaper global liquidity, a weaker dollar and foreign investors scouring for yield. This could mean short-term impetus for the Indian markets.

A rate cut also softens the US dollar, which could be a positive for gold and silver prices while potentially aiding the rupee.

Market analysts reacting to the Fed rate cut, though, feel curious about the 25 bps cut, which comes at a time when equities are flirting with all-time highs. Not to mention, valuation concerns have crept in as well.

According to Harshal Dasani, Business Head at INVAsset PMS, the fed rate signals that the real economy is under pressure.

"A rate cut in an environment of elevated asset prices typically signals that the real economy is under pressure in ways markets haven’t fully acknowledged," he said.

"In earlier cycles, pre-emptive cuts made before an official downturn often foreshadowed deeper slowdowns rather than the start of a renewed bull run, because they reflected policymakers attempting to cushion weakening demand or emerging credit stress," he added.

Ross Maxwell, Global Strategy Operations Lead at VT Markets, believes volatility in global markets will remain, even as the Fed announces rate cuts.

"Uncertainty over US growth potential and the limited room for manoeuvre the Fed have for further easing may hold back global investor sentiment. Emerging markets could benefit from a softer dollar, but volatility is likely to remain as the global markets adjusts to shifting US economic signals," he said.