Kolkata: The US Federal Reserve acted on expected lines and did not alter the key interest rates and on March 18. Analysts saw it as an attempt to balance moderating economic growth and persistent inflation worries amid a war in West Asia which is disrupting the energy situation for the US as well. As a result, the benchmark interest rates were left in the region of 3.5%-3.75%.
Petrol rpices have risen in the US since the onset of the hostilities with Iran on Feb 28.
Inflation projected to rise
With the oil shock raising prices in the US, the Fed revised its outlook upwards for the inflation footprint and said it could rise to 2.7% by the end of this calendar year. The Fed has the mandate to keep inflation at 2%. According to the Fed, headline PCE inflation would jump from 2.4% to 2.7%, while core inflation, which excludes volatile items such as fuel, could move up from 2.5% to 2.7%.
Three rate cuts in 2025
The rate-setting FOMC (Federal Open Market Committee) meeting on Wednesday was the second one to be held this year. In 2025, the FOMC cut rates thrice but it took a pause in the first meeting this year. On March 18, it extended the pause. The rising fuel prices due to the war with Iran rendered the task of the US Fed difficult. Elevated oil prices tend to raise inflation, decelerates consumption and retards growth.
Indian markets
The Indian markets are expected to react positively and experts pointed put that the Fed’s stance on growth and inflation will be watched closely by analysts in India and investors on Dalal Street. “Street is pencilling no change in interest rate by US Fed and hence this event is likely to be neutral from equity market perspective. Commentary on inflation and jobs data will be the key monitorables,” Sunny Agrawal, head – fundamental research at SBI Securities, was quoted in the media as saying on March 18.
If the US central bank cut rates it would have softened the dollar and helped FII investments into India. But with the rates unchanged, the act could keep bond yields higher and cause FII outflows intermittently from India. On Wednesday, Sensex 30 surged 633.29 points to settle at 76,704.13, while Nifty 50 rose 196.65 points to end at 23,777.80.