NUMBER OF THE WEEK: 50 basis points rate cut by the US Federal Reserve
The US Federal Reserve has cut the federal funds rate by 50 basis points (bps) from 5.25-5.5 per cent to 4.75-5.00 per cent, marking the first reduction since 2020. This decision, made amid job market concerns and ahead of the November 2024 presidential elections, is expected to be followed by another 50-bps cut by the end of 2024 and a further 100-bps reduction in 2025.
US inflation has significantly dropped from a peak of 9.1 per cent in mid-2022 to a three-year low of 2.5 per cent in August, close to the Fed’s 2 per cent target. With inflation nearly at target levels, the Fed is now focusing on supporting a weakening job market and achieving a “soft landing” to curb inflation without triggering a sharp recession.
The global trend of lowering interest rates could complicate efforts by the Reserve Bank of India (RBI) to control inflation, targeted at 4.5 per cent for the 2024-25 fiscal year. The RBI aims to keep inflation within a 4 per cent range, with a margin of plus or minus 2 per cent. An accelerated global rate-cutting cycle could lead to increased capital inflows into India, benefiting stock and debt markets but complicating currency management and potentially creating inflationary pressures by expanding the domestic money supply.
First Published: Sep 20 2024 | 7:51 AM IST
