New York: The US Federal Reserve cut interest rates by a quarter point and signaled a slower pace of cuts ahead, triggering a sharp sell-off in the financial markets globally including in India. Policymakers voted 11-to-1 to lower the central bank's key lending rate to between 4.25 per cent and 4.50 per cent as expected, the Fed announced in a statement.
But the Jerome Powell-led team also halved the number of quarter-point cuts they expect next year, from an average of four back in September to just two, catching the markets by surprise.
All three major indices on Wall Street finished firmly lower, while the yields on the US Treasury surged as traders digested the prospect of higher interest rates over the next couple of years. Meanwhile, Wall Street stocks rose early on December 19, recovering some of the losses from the prior session's sell-off, as markets shrugged off for now the risk of a US government shutdown, according to reports.
In updated economic forecasts, the 19-member Federal Open Market Committee (FOMC) announced just two quarter-point rate cuts in 2025, on average, halving the number of cuts they now expect. In some good news for the world's largest economy, Fed members raised their outlook for growth this year to 2.5 per cent, and to 2.1 per cent in 2025.
On the other hand, the Indian rupee fell 18 paise to an all-time low of 85.12 against the US dollar on the National Stock Exchange (NSE) over the Federal Reserve's hawkish commentary on the rate cut outlook. After the US Fed's decision, there was a strong rally in the dollar and the dollar index crossed the 108 level. Apart from the Indian currency, its effect was also seen in other foreign currencies.
