The Indian stock market saw a sharp decline on December 19, 2024, following the US Federal Reserve’s revised projections for fewer rate cuts in 2025. This decision triggered a global sell-off, impacting the Nifty 50 and BSE Sensex.
The Federal Reserve cut its benchmark interest rate for the third time, lowering it to 4.25 per cent-4.5 per cent. Policymakers signal fewer rate cuts in 2025, with inflation and labour market trends driving cautious economic strategies.
Indian equity markets opened lower on Wednesday with the Sensex dropping 149.31 points to 80,535.14 and the Nifty 50 slipping below 24,300. Banking, auto, and energy sectors saw significant losses while IT stocks showed resilience.
Sensex and Nifty hit record highs after the US Fed rate cut, driving optimism in global markets. The BSE Sensex surged 236.57 points, reaching an all-time high of 83,184.80, while the NSE Nifty climbed to 25,415.80. Banking stocks led the rally, reflecting strong investor sentiment.
The rate cut ends a 14-month period where rates were held steady. This duration is longer than three of the last six Fed "hold" periods but falls short of the 15-month pause before the 2007-2009 financial crisis.
The Federal Reserve on Wednesday cut its benchmark interest rate by an unusually large half-point, a dramatic shift after more than two years of high rates that helped tame inflation but that also made borrowing painfully expensive for American consumers.
The stock markets opened higher on Thursday, fueled by optimism about a potential US Federal Reserve rate cut in September and easing geopolitical tensions. Analysts predict new all-time highs for Nifty and Sensex next week.
This is the eleventh rate increment since the Fed started its expansion battle in March 2022 and comes only one month after the national bank hit 'stop' to survey the condition of the economy after the disappointments of three provincial banks since the spring, according to Fox Business.
Among the 30-share Sensex pack, Bajaj Finserv, HDFC, Wipro, HDFC Bank, Tech Mahindra, HCL Technologies, Power Grid, and ICICI Bank were the major laggards. ITC, Maruti, IndusInd Bank, and Hindustan Unilever were among the gainers in early trade.
At the interbank foreign exchange, the domestic unit opened at 79.66 against the dollar, then touched 79.61 in initial deals.
All told, the Fed’s credit tightening will likely mean higher loan rates for many consumers and businesses over time, including for mortgages, credit cards and auto loans. With prices for food, energy and consumer goods accelerating, the Fed’s goal is to cool spending — and economic growth — by making it more expensive for individuals and businesses to borrow.
"Over 1st half of 2021, progress on vaccinations has led to a reopening of the economy and strong economic growth, supported by accommodative monetary and fiscal policy," the Fed said in its semi-annual monetary policy report to Congress on Friday.
In a drastic measure to stem any major disruption to the US economy as a result of the coronavirus outbreak, the Federal Reserve has cut its benchmark interest rate to almost zero and said it would buy USD700 billion in bonds.
Jerome Powell is confronting his stiffest test yet as head of the Federal Reserve in an atmosphere vastly altered from what his predecessors faced. It makes an uncertain situation even more challenging.
The central bank said US economic activity has been rising at a moderate rate, job gains have been solid and the unemployment rate has remained low, but it justified its decision by citing "muted inflation pressures" and "implications of global developments for the economic outlook."
According to the Federal Reserve, country's 35 biggest financial institutions would be able to lend to households and businesses.
The Fed chair said it would be "very difficult" to achieve the 4% growth President Donald Trump has promised, expects economy to grow at a "moderate" pace in future years.
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