Fed Rate Decision: US Holds at 3.75-4%, What It Means for Dalal Street (October 28)

The Fed rate decision that Dalal Street was waiting for turned out to be a non-event, at least on the surface. On Wednesday, October 28, the US Federal Reserve kept the federal funds rate in a target range of 3.75% to 4%, according to the FOMC statement. The result reached Indian investors around midnight, so Thursday’s session is the first chance for local markets to react.

What the Fed rate decision actually said

This was not a unanimous hold. The committee voted 10 to 2, and the two dissenters, Governor Lisa Cook and Cleveland Fed President Beth Hammack, wanted to raise the range by a quarter of a percentage point, the statement shows. The language was hawkish too. The Fed said economic activity “is expanding at a strong pace” and that “inflation remains elevated”, adding that more information would help it decide how to bring inflation back to its 2% goal.

Remember the backdrop. The Fed raised rates by 25 basis points at its September meeting, its first hike since July 2023, which took the range to the current 3.75% to 4%, Livemint reported. US consumer inflation then picked up to 3.7% year-on-year in September from 3.4% in August, the same report said, citing Labor Department data. The decision also came less than a week before the US midterm elections.

Why analysts expect a muted reaction in India

Most market voices we read think the pause was already priced in. V K Vijayakumar of Geojit Investments told Livemint that a discounted pause is unlikely to move the market. Ventura’s Vinit Bolinjkar made a sharper point: a pause is a delay, not a change in direction.

That matters because US commentators read the statement as a setup for a December hike. Chris Zaccarelli of Northlight Asset Management told Livemint the Fed left “plenty of clues” that it plans to raise rates at the next meeting.

The bigger worries: oil and US yields

Here is where the real pressure sits. The US 10-year bond yield rose to 5.046% from 4.993% in the previous session, Livemint said, and higher US yields tend to pull foreign money away from emerging markets like ours. Then there’s crude. Brent was trading near $115 a barrel and had gained more than 12% this month, a Kotak Neo commodity analyst told Business Standard.

G Chokkalingam of Equinomics Research called oil a much bigger pain for India than US yields. At these prices, he estimated India’s monthly oil import bill could be around $15-16 billion, which keeps the rupee under pressure. He also linked continued foreign selling to two things: money flowing into the IPO market, and the weak rupee. Our running coverage of FII and DII flows tracks those numbers day by day.

What to watch next

Short term, the Fed is no longer the headline. The US PCE inflation data, the Fed’s preferred gauge, was due on Thursday, according to Livemint, and a hot number would firm up December hike bets. Closer to home, crude prices, the rupee and the remaining Q2 results will probably decide direction more than anything said in Washington. For where the indices stood before the Fed, see our October 27 market wrap. Our read: a hold that comes with two hike votes is not the relief signal it looks like.

Disclaimer: This article is for informational purposes only and is not investment advice. Markets carry risk; please do your own research or consult a SEBI-registered adviser before investing.