The US Federal Reserve on Wednesday made a swift start of its rate cut cycle by slashing the interest rates by 50-basis points (bps) The US Fed Fund Rate now stands at 4.75-5 per cent down from 5.25-5.5 per cent. Indeed, the central bank’s projection (dot plot) shows that the median fund rate for 2024 to be at 4.4 per cent. That leaves the door open for another 50-bps cut for the rest of the year. Two more meetings are pending for this year. One on November 7 and the last meeting for the year on December 18. Will the there be a 25-bps rate cut in each of these meetings? Or a 50-bps rate cut will come as a whole in December? We will have to wait and watch.

The US equities surged after the Fed statement release. However, they failed to sustain higher as the US Federal Reserve Chairman, Jerome Powell said in his press conference that the central bank is not going back to the era of easy money.

Cooling inflation

The Fed expects inflation to cool down further in the coming months. Their forecast shows that the Personal Consumption Expenditure (PCE), the Fed’s inflation gauge, to be at 2.3. per cent this year. This is down from 2.6 per cent projected in June. Low crude oil price can aid in keeping the inflation lower in the coming months.

Increasing unemployment

The unemployment rate in the US could be one important data that will need a close watch. The Fed had revised its projections higher in this meeting. The central bank expects the US unemployment rate to be at 4.4 per cent this year. This is higher from a 4 per cent unemployment rate given in its June projection. Although the Fed Chairman Jerome Powell indicated in the press conference that high unemployment rate is not a concern, this cannot be neglected. Increasing unemployment rate could be one sign of a slowdown. So, the unemployment data release in the coming months will need a close watch.

Volatile dollar

The dollar index (100.93) has been very volatile after the Fed meeting outcome. The index fell to a low of 100.21 and then recovered sharply to a high of 101.47 in the early Asian session today. From there it has come down again to the current level of 100.93. That leaves the outlook mixed for the index. 100-102.25 can be the trading range for now.

We will have to wait for a breakout on either side of 100-102.25 to get clarity on the next move. A break above 102.25 will be bullish. It can take the index up to 103-104 again. On the other hand, a break below 100 will be bearish for a fall to 98.

Nifty comes-off

The Nifty 50 surged to a new high of 25,640 at the opening trades today and has come down sharply from there. It is currently trading at 25,406, up 0.1 per cent.

Nifty has strong support around 25,400 and then in the 25,200-25,000 region. As long as the index stays above 25,000 the outlook will remain bullish. Nifty has potential to target 25,800 and even higher in the coming weeks. So, we can expect the Nifty to rise back either from around 25,400 itself or after an extended fall to 25,200-25,000.

Related Topics