US Fed holds rate, sticks to 3 cut plans in relief to stock markets

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By S Jha

New Delhi, March 20: The US Federal Reserve finally committed to the plan for three rate cuts this year in a major relief to the global equity markets. The US Fed also held the rate at the current level. In another relief to the equity markets, the US Fed has noted that the recent heated inflation was an aberration and not part of the pattern under which the price rise in retail is only going downwards.

The US Federal Reserve late Wednesday evening announced that three rate cuts are possible this year in line with the previous projection to lower the rate by 0.75 points from the current level of 5.5 per cent. The US Fed is likely to embark on a 25 basis point cut in the rate in the next few months.

The US Fed is also likely to back up the rate cuts in 2024 of 75 basis points with similar cuts in 2025 to eventually bring the rate to four per cent by the end of the next year. The dovish soundbytes of the US Fed are likely to cheer the market participants. The US bourses were immediately reacting enthusiastically with indices gaining in the afternoon session.

The bond yields are also heading downwards in relief to the equity market participants. The Dow Jones was higher by 146 points in the afternoon session. The NASDAQ was also firm with a gain of 66 points, which was almost 0.66 per cent for the index. The NASDAQ is already rallying on the basis of the strength in the tech scrips.

The Indian indices, however, remained in sideways mode during the day with the market participants adopting the risk-off approach ahead of the key announcements by the US Federal Reserve. Nifty swung from extreme positions with deep cut and the high of the day to close the day with minor gains. Bank Nifty ended in the red as the investors avoided taking overnight risk positions. The Indian markets are also likely to react positively to the decision of the US Fed, and the Nifty weekly option expiry may see possible scope for short covering in the event the direction gains strength through the day of the market.