The US Federal Reserve decided to cut the benchmark interest rate by 25 basis points on Wednesday, September 17, amid signs of growing stress in the labour market.

The FOMC voted by an 11:1 majority to cut the federal funds rate by 25 bps and bring it down to a range of 4 per cent to 4.25 per cent.

The Fed’s policy decision was largely in line with expectations. The central bank did give subtle hints of further easing in the coming months, but it emphasised that the policy decisions will remain anchored to incoming data and evolving situations.

“The median participant projects that the appropriate level of the federal funds rate will be 3.6 per cent at the end of this year, 3.4 per cent at the end of 2026, and 3.1 per cent at the end of 2027. This path is 1/4 percentage point (25 bps) lower than projected in June,” said Fed Chair Jerome Powell.

“As is always the case, these individual forecasts are subject to uncertainty, and they are not a committee plan or decision. Policy is not on a preset course,” Powell added.

Fed’s mixed signals triggered volatility in the US market. Dow Jones jumped about 500 points but eased soon, only to turn higher again.

US Fed rate cut: How could it impact the Indian stock market?

Experts believe the market had already discounted a 25 bps rate cut, so the Fed’s September rate cut may have a limited impact on the Indian stock market. However, Powell’s dovish tone could influence investors’ risk appetite.

“A 25 bps rate cut won’t boost the Indian stock market as it is largely discounted. A cumulative 50 bps or even bigger cut will be a positive for the Indian market,” said G. Chokkalingam, founder and head of research at Equinomics Research Private Limited.

An overall 75-100 rate reduction will be positive for emerging markets like India, as it will ease the US dollar and bond yields and may trigger foreign capital inflows.

“Should the Fed go for one or two additional reductions this year, global risk sentiment may improve — lifting equities, including Indian markets, while easing bond yields and pressuring the dollar,” said Ajit Mishra, SVP of research at Religare Broking.

Mishra believes select IT, banking and financial stocks, including TCS, HCL Tech, Infosys, HDFC Bank, Kotak Mahindra Bank, SBI, PFC, Bajaj Finance, and M&M Finance, may react on Thursday due to the Fed’s policy decision.

The Fed has to make tougher policy choices as it will need to balance controlling inflation with supporting growth.

According to Madhavi Arora, Chief Economist at Emkay Global Financial Services, if the central bank adopts a more accommodative stance, it could give central banks in emerging markets, including the Reserve Bank of India (RBI), greater flexibility to maintain or ease their own policies.

Read all market-related news here

Read more stories by Nishant kumar

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.