US Fed Rate Cut: Will FOMC's Pivot Compel RBI To Ease Further? Here's What D-Street Must Watch Out For

US Fed Rate Cut: The US Federal Reserve slashed its key benchmark interest rate for the second straight meeting, in line with Wall Street expectations. The US central bank eased its monetary policy further during the eighth meeting of 2025 on Oct. 29, over sluggish growth in jobs despite the tariff risk. After a two-day review by the federal open market committee (FOMC), the new Fed interest rate stands at 3.75%-4.00%.

Fed chairman Jerome Powell-led FOMC highlighted that it is strongly committed to "supporting maximum employment". A rate cut is aimed at giving impetus to businesses by easing liquidity, which can likely increase job opportunities. Lowering that target range represents an "easing" of monetary policy as it is accompanied by lower short-term interest rates in financial markets and a loosening in broader financial conditions.

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. Market participants are closely tracking the spillover effect of the US Fed rate cut, with the Indian market being a key focus area, especially at a time when equity benchmarks are coming off after a period of consolidation.

On Oct. 30, domestic equity benchmarks fell sharply lower with the Sensex tumbling 592.67 points and the Nifty 50 declining to 25,877.85 level, as fresh foreign fund outflows and no clear clarity on the future course of rate action by the US Federal Reserve dampened investors' sentiment.

The 30-share BSE Sensex tanked 592.67 points or 0.70 per cent to settle at 84,404.46. During the day, it dropped 684.48 points or 0.80 per cent to 84,312.65. The 50-share NSE Nifty tumbled 176.05 points or 0.68 per cent to 25,877.85.

"The market consolidated after Chair Jerome Powell indicated that this might be the last rate cut of 2025, tempering hopes of further monetary easing. The resulting strength in the US dollar contributed to a risk-off sentiment across emerging markets, including India," said Vinod Nair, Head of Research, Geojit Investments Limited.

After the latest US Fed policy decision, Om Ghawalkar, Market Analyst, Share.Market told NDTV Profit that the Fed aims to juice consumer spending and business investment without reigniting inflation, responding to softer payroll data like ADP's National Employment report of 32,000 fewer private jobs last month.

"This isn't panic mode, but a proactive nudge to keep recession at bay in a choppy labor market. Immediately, this ripples into emerging markets like India through a weaker dollar and cheaper global borrowing, potentially drawing foreign cash into equities and bonds for better yields," he said.

According to the market expert, Indian stocks could see a short-term lift from FII inflows, especially in IT and pharma sectors tied to US demand, while rupee stability might ease import costs for oil and commodities. Bond yields could dip too, making corporate debt more attractive, but watch for volatility if US Treasury flows reverse.

The Reserve Bank of India's rate-setting panel kept the headline repo rate unchanged at 5.5% for the second consecutive time in October. The decision was unanimous by the Monetary Policy Committee, which also maintained a 'neutral' stance. RBI Governor Sanjay Malhotra-led MPC began easing the policy in February 2025 with a 25 basis point rate cut.

According to Ghawalkar, the Fed's pivot might force RBI's hand toward its own cuts in the coming months looking further ahead, as sustained low US rates could stoke capital outflows from India if domestic yields lag, prompting policy tweaks to defend the rupee without choking growth.

"Behavioral shifts among investors could mean more rotation into Emerging Market assets, but also heightened vigilance on inflation pass-through from a softer dollar. RBI might lean on liquidity tools like CRR reductions instead of aggressive rate moves to balance act," he concluded.