Fed Freezes Rates as Global Uncertainty Looms

In a move anticipated by market analysts, the US Federal Reserve has opted to keep the federal funds rate steady at 4.25-4.50%. Economists attribute this decision to the central bank's deliberate caution in the face of ongoing global trade tariffs and escalating geopolitical tensions.

Sonal Badhan, an Economics Specialist at the Bank of Baroda, conveyed to ANI that the decision aligns with previous expectations. Badhan predicts two rate cuts in the calendar year 2025, likely in September and October. The Fed's 'dot plot' continues to signal these reductions. However, a noticeable shift has occurred, with seven members now advocating for no rate change this year, up from four previously. The 'dot plot' is a chart from the U.S. Federal Reserve illustrating each FOMC member's interest rate forecasts.

For India, analysts expect the Fed's decision to have a limited positive impact. US 10-year bond yields have mostly held steady, keeping the India-US yield differential narrow and exerting pressure on the Indian rupee and foreign portfolio investments. Badhan noted that the Reserve Bank of India's monetary policy leeway is constrained by its inflation mandate, adding that rainfall, sowing, and food prices will influence future rate decisions.

Other experts consulted by ANI highlighted the Fed's revised economic outlook, which lowered growth projections for 2025 and 2026. Banking and Market Expert Ajay Bagga noted the US markets remained sluggish as the Fed held its rates. The Dot Plot forecasts two rate cuts in 2025, and Fed Chair Jerome Powell warned of potential inflation increases due to tariffs, amidst a stable US economy and labor market, suggesting no immediate rush for rate cuts.

Inflation forecasts have increased by 50 basis points since December 2024, while GDP growth projections have declined by 70 basis points cumulatively. Equirus Securities Economist Anitha Rangan suggested the Fed's policy is more hawkish than anticipated, both for the current year and beyond, due to geopolitical tensions and tariff uncertainties.

While the Fed acknowledged reduced but still elevated uncertainty regarding the economic outlook, experts interpret this as an effort by the central bank to retain flexibility amidst unpredictable global developments. (ANI)

(With inputs from agencies.)