FOMC's September 2024 Meeting: What to Expect?

The Federal Open Market Committee (FOMC) is gearing up for its next meeting on September 17-18, 2024, at 12:00 midnight (IST), and the financial world is closely watching the outcomes. Experts widely anticipate a 25 basis points (bps) rate cut by the Federal Reserve, while futures indicate a 47% chance of a half-percentage point cut, up from 28% on Thursday. The current rate stands at 5.25%-5.50%.

However, speculation about the possibility of a more aggressive 50 bps cut is keeping markets on edge. Let’s dive into what this could mean for both the U.S. and Indian markets.

The FOMC, a key decision-making body of the U.S. Federal Reserve, shapes monetary policy with the goals of boosting employment, controlling inflation, and maintaining economic stability.

It primarily uses interest rate adjustments to either stimulate economic growth by lowering borrowing costs or slow it down by increasing credit expenses. These decisions impact not only the U.S. economy but also global markets, affecting stock prices and currency exchange rates.

As of the latest update, the Producer Price Index (PPI) has risen by 1.72% YoY, and the Consumer Price Index (CPI) has increased by 2.50% YoY. The GDP has grown by 2.5% QoQ. The unemployment rate stands at 4.20%, with an employment rate of 61.86%. The policy rate is currently at 5.50%. Export growth is at 16.80%, while import growth is at 11.80%. This economic data indicates a slight easing in the U.S. economy without a significant downturn. In light of these conditions, a 25 basis points rate cut is anticipated, which is already factored into the market and is unlikely to cause a major reaction.

A larger cut of 50 bps, though less likely, is still within the realm of possibility. A decision to cut rates more aggressively would likely catch markets off guard and could trigger short-term volatility, as investors grapple with what the move might imply about the U.S. economy’s health.

If the FOMC opts for the expected 25 bps cut, the U.S. stock market may react minimally, as investors have already adjusted their strategies in anticipation of this decision. However, a surprise 50 bps cut could create a more complex scenario. On one hand, it would be welcomed by businesses and consumers as it would reduce borrowing costs, potentially boosting economic activity.

On the other hand, it could also signal that the Fed is more concerned about the state of the economy than previously thought, which could lead to uncertainty. Initially, stocks might rise, but the broader sentiment could turn cautious as concerns over the economy's underlying strength surface.

The Fed’s actions have a significant impact on markets worldwide, and India is no exception. A 25 bps rate cut from the FOMC would likely have a muted effect on Indian equities since it has already been expected by most investors. However, a 50 bps cut could stir more significant reactions in India. In the short term, such a cut might boost foreign inflows into emerging markets like India, where investors seek higher returns. This could strengthen the Indian rupee and lift stock prices, especially in sectors like IT and financial services.

However, the flip side is that a larger-than-expected cut might hint at deeper concerns within the U.S. economy, which could spark fears of a global slowdown. If that sentiment takes hold, Indian markets could see increased volatility. Sectors heavily tied to global demand, such as metals and exports, could come under pressure if concerns about a U.S. economic downturn grow.

The upcoming FOMC meeting, with expectations for a 25 bps rate cut and speculation of a potential 50 bps reduction, could significantly influence global markets. A 25 bps cut might have minimal immediate effects, while a surprise 50 bps cut could create short-term volatility.

Indian markets could see increased foreign inflows but may also face volatility if concerns about the U.S. economy deepen.


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