US Fed Cuts Rates by 50 Basis Points, First Reduction Since 2020

US Fed: The US Federal Reserve has lowered its benchmark interest rate by 50 basis points, marking the first rate cut since 2020. This decision signals the central bank's intention to begin reversing the restrictive measures previously implemented to combat inflation.

The Fed's benchmark policy rate had remained steady in the range of 5.25%-5.50% for the past 14 months, a period that is longer than three of the last six "hold" periods but still shorter than the 15 months during the financial crisis of 2007-2009. It also falls short of the 18-month pause seen during the "Great Moderation" era of the late 1990s.

The impact of the US Federal Reserve's move to cut the benchmark interest rate will be muted for India as it was mostly priced in, Chief Economic Advisor V Anantha Nageswaran said on Thursday.

He said that the Indian stock market is already attracting investor interest and overall the rate cut is positive for emerging markets.

"The impact on India will be little muted... much of it (rate cut) priced in," Nageswaran said at Deloitte's Government Summit 2024.

On Wednesday, the US Federal Open Market Committee voted to cut the federal funds rate target range by 50 basis points to 4.75-5.00 per cent from 5.25-5.50 per cent, against expectations of a cut half that size.

Earlier in the day, Economic Affairs Secretary Ajay Seth said that the rate cut is unlikely to have any significant impact on foreign inflows into India.

"I don't see that making any a significant impact on inflows. We have to see from (the point of) where the (US interest rates) levels are. We have to see how do other economies, markets behave," Seth told reporters here.

The US central bank had kept interest rates at an over two-decade high for 14 months.

"The US economy is, basically, fine," Fed Chair Jerome Powell had said. The Fed is seen cutting interest rates by a further 50 bps in 2024.