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Below the Perspective on US Fed rate decision by Anitha Rangan, Economist, Equirus Securities

While the Fed opted to hold interest rates steady for the fourth consecutive meeting in a range of 4.25% to 4.50% today which was on expected lines, Fed has revised the inflation expectations upwards to 3% from 2.7% while growth was revised downwards to 1.4% from 1.7% for 2025. Unemployment was marginally revised upwards to 4.5% from 4.4%.

Taking all these, the committee still anticipates two cuts for the year as its median forecast, the skew is more towards the hawkish side as now seven officials versus four earlier now forecast no change in policy for the year. Also for 2026 and 2027 the guidance is shifted to one cut from two cuts earlier.

In all, the Fed policy has become more hawkish than expected not just for this year but prospectively as well. With the ongoing tensions around the geo-politics with still uncertainty around tariffs, the Fed could turn more hawkish down the road, lowering prospects of accommodation if growth does not hurt too much.

In all this, RBI may also well want to hold on to its neutral stance for a longer period of time. The pause may well be the narrative until there is clarity on the external front (which seems less likely given the developments in the last three years). With rising externalities, the new norm could well be higher inflation, moderate growth and higher rates as a result. For India, the BoP risks from debt refinancing front and currency pressures will hold the key. While the macro strength is building, we still cannot let the guard down.

Bottom Line: As expected, the Fed opted to leave rates unchanged for the fourth consecutive meeting as the Committee waits for more clarity regarding government policies, particularly tariffs, and their potential impact on the economy. While the Fed maintained a still relatively positive assessment of current conditions, the Committee is wary of some headwinds with updated forecasts indicating slower growth and higher inflation.

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