New Delhi [India], June 19 (ANI): In line with market expectations, the US Federal Reserve has decided to keep the federal funds rate unchanged at 4.25-4.50 per cent.
Economists say the central bank’s decision reflects a cautious approach amid persistent uncertainty surrounding global trade tariffs and rising geopolitical tensions.
Sonal Badhan, Economics Specialist at Bank of Baroda, told ANI, “The decision was mostly in line with our expectations. We continue to expect 2 rate cuts in CY25, most likely in sep’25 and oct’25….The dot plot continues to signal 2 rate cuts in cy25. We are projecting cuts in Sep ’25 and Oct ’25. However, the notable change was that now 7 members insisted on no change in rates this year, up from 4 last time”.
The dot plot is a chart published by the U.S. Federal Reserve that shows the projections of each Federal Open Market Committee (FOMC) member for the future path of interest rates (the federal funds rate).
For India, the experts noted that the Fed’s decision is expected to have a limited positive impact. US 10-year bond yields have remained mostly stable, keeping the India-US yield spread narrow. This narrow spread is likely to continue putting downward pressure on the Indian rupee and foreign portfolio investment (FPI) inflows.
Badhan added, “RBI’s monetary space is limited by its inflation mandate. The actual spatial distribution of rainfall, sowing, and food prices will determine if RBI can lower rates further. Downward pressure on real rates will also be a limiting factor for the central bank.”
Other experts ANI spoke with also noted that the Fed has revised its macroeconomic outlook, lowering its growth projections for both CY25 and CY26, which indicates that much of the tariff-related impact has already been factored in.
Ajay Bagga, Banking and Market Expert, noted, “US markets were flat to negative as the Fed held rates as per expectation, the Dot Plot forecasted 2 rate cuts in 2025 and Powell in his speech spoke of the expected rise in inflation due to the tariffs and the stable US economy and labour market precluding any rush for rate cuts.”
Inflation estimates have been raised by 50 basis points since the December 2024 forecast, while GDP projections have been lowered by 70 basis points cumulatively.
Anitha Rangan, Economist at Equirus Securities, said, “In all, the Fed policy has become more hawkish than expected, not just for this year but prospectively as well. With the ongoing tensions around the geo-politics and uncertainty around tariffs, the Fed could turn more hawkish down the road, lowering prospects of accommodation if growth does not hurt too much.”
While the Fed noted that uncertainty about the economic outlook has diminished, it remains elevated. Experts believe this reflects the central bank’s attempt to remain flexible amid unpredictable global developments. (ANI)
Disclaimer: This story is auto-generated from a syndicated feed of ANI; only the image & headline may have been reworked by News Services Division of World News Network Inc Ltd and Palghar News and Pune News and World News
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