The US Federal Reserve has maintained its benchmark interest rates unchanged in a range of 5.25 per cent to 5.50 per cent, marking the fifth consecutive time it kept rates unchanged. Further, the Fed signalled three potential rate cuts this year, even though it kept the inflation forecast unchanged above targetted inflation.
Market experts perceive the Fed's decision not to reduce its balance sheet as positive for Indian markets. Further, the upcoming rate cuts could also increase foreign capital inflows. The Fed's dovish stance has boosted international gold prices, and they advise gold buyers to make fresh buys only in the next dip.
Sandeep Bagla, CEO, TRUST Mutual Fund, "US Fed Governor’s statements are perplexing and contradictory. When inflation is higher than the target, and is expected to remain high, planning rate cuts appear contrary to conventional central bank policymaking." US Federal Reserve had left the headline inflation forecast unchanged. Expectations of longer-run inflation have also been revised higher, now ranging between 2.5 per cent and 2.8 per cent, up from a range of 2.4 per cent to 2.7 per cent. The headline inflation forecast for the end of the year, measured by the PCE index, remained at 2.4 per cent for December 2023.
"Markets could be enthused that there was no mention of reduction in the bloated balance sheet of the US Fed. The US Fed non-action is positive for Indian markets at the margin," Bagla added. Fed rate cuts tend to boost foreign capital inflows into emerging markets like India. As the outlook of the Indian economy remains strong, rate cuts will boost foreign capital inflow which can lead the market to new highs.
Ghazal Jain Fund Manager- Alternative Investments, Quantum AMC commented on the impact on gold, “The Fed signalled that it remains on track to cut interest rates by 75 basis points in 2024, easing market concerns of fewer rate cuts amid recent data showing sticky inflation, he said. The market after the Fed announcement believes that there's a higher probability (about 70 per cent) that the Fed will start cutting interest rates during its June policy meeting, whereas earlier only 55 per cent of the market expected rate cuts, Jain said.
"The US Dollar declined, and international gold prices touched new highs in response to this dovish hold. While the fundamental backdrop of lower interest rates and geopolitical uncertainty looks supportive for gold, some profit-taking can be done at these levels. Fresh buys can wait for price dips,” Jain said.
Chakrivardhan Kuppala, Cofounder and Executive Director, Prime Wealth Finserv said, "The US Federal Reserve decision may indirectly benefit the Indian market. This policy stance, suggesting an effort to stimulate economic activity by maintaining liquidity and possibly lowering rates, generally supports global equity markets. For India, specifically, the aftermath of this decision has led to a decrease in the dollar index and a steepening of the US yield curve. While the environment seems conducive for investment growth, particularly in sectors poised to benefit from economic expansions, it's important to note the backdrop of global economic dynamics, including potential oil price fluctuations."
