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Below is Perspective on US Federal Reserve Announcement by Mr. Mohit Ralhan, Managing Partner & Chief Investment Officer of TIW Private Equity.

The Fed has signalled a hawkish stance in the coming years while keeping the policy rates unchanged for now. The dot plot shows that the Fed expects to raise policy rates three times in 2022 and three times in 2023 based on median projections. But even after that, the rates will not reach the level of 2.5%, which is considered a neutral level by the Fed. It will still remain on the side of supporting growth although the intensity will come down. Another factor is the threat to the economy mounted by the Omicron variant which was duly listed as a risk and therefore if the economy takes a hit, there is a high likelihood of postponement of rate hikes.

The shift in the commentary on inflation from “being transitory” to “being persistent” has made the start of tapering a foregone conclusion. The acceleration of tapering indicates that the Fed is playing catch up to inflation and at the same time it also indicates that the policymakers are comfortable with the sustainability and projections of economic growth. With the uncertainty around tapering now out of the equation, a positive outlook on economic growth and a likely supportive action by the Fed if the Omicron variant proves to be a dampener, the stock markets in the US have responded positively to the policy announcement.

As far as Indian markets are concerned, it has been witnessing a downward pressure in anticipation of the Fed’s policy decisions as there is likely to be a decrease in liquidity, which is un-correlated to economic recovery and growth. Therefore, the impact is expected to be relatively smaller and post a stabilizing event, the bull run in India is likely to continue on the basis of domestic factors. The Fed actions will spur central banks around the globe, including RBI, to adjust their own policy stances to balance the demands of local macroeconomic factors.

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