The two-day policy meeting of the US Federal Open Market Committee (FOMC) starts on Tuesday, September 16, amid sticky inflation, poor jobs growth data, and mounting pressure from US President Donald Trump to reduce rates substantially.
All eyes are on the Fed’s policy meeting outcome on September 17, even as market participants believe it is almost certain that the US central bank will cut rates by 25 bps. A small section of experts even sees the possibility of a 50 bps rate cut.
US Fed meeting: What’s in store?
Experts say the Fed will go for a reasonable 25 bps rate reduction as it cannot ignore the risk of sticky inflation which can rise even higher due to Trump’s tariff policies.
Fed Chair Jerome Powell signalled the possibility of “policy adjustments” in the coming months in his Jackson Hole speech on August 22. US tariffs and tighter immigration policies have raised the risk of inflation and a slowdown in the labour market.
Powell underscored that inflation risks remain skewed to the upside while employment risks are tilted to the downside. This complexity had caused a changing risk balance, which could justify an adjustment in the central bank’s policy stance. Since his remarks, global markets have begun pricing in a 25-basis-point rate cut.
The market expectations about a rate cut are not devoid of logic. The jobs market data show that it is high time the Fed acted.
The US economy generated as many as 9,11,000 fewer jobs in the 12 months through March than previously estimated. The unemployment rate jumped to 4.3 per cent last month, up from 4.2 per cent in July. US job growth was at 22,000 in August, sharply dropping from 79,000 in July 2025.
However, a bigger rate cut is also unlikely simply because the war against inflation continues. And the fear of inflation spiking further remains strong as Trump’s tariff war looks far from getting over.
US consumer inflation rose to its highest this year after January. The US Consumer Price Index (CPI) increased by 2.9 per cent in August, a 0.2 per cent increase from July, when it rose 2.7 per cent. Fed’s preferred inflation gauge, Personal Consumption Expenditures (PCE) was stable at 2.6 per cent in July. The August PCE prints are due on September 26.
At the current juncture, it appears that the Fed may cumulatively reduce rates by 50-75 bps in the next few months. Apart from the job market signals, Powell also faces some pressure from the US President. While he has been able to withstand the pressure so far, Trump’s influence on the Fed’s policy decision remains an area of great interest for markets.
Just ahead of the Fed’s policy meeting, the US Senate on Monday confirmed Trump’s top economic adviser, Stephen Miran, to the Fed’s Board of Governors. Miran’s entry as the Fed governor is seen as Trump’s growing influence over the US central bank.
“A 25 bps cut will happen because of the softening US jobs market and Trump’s pressure. The Fed may cumulatively cut rates by 50-75 bps by December this year,” said G. Chokkalingam, founder and head of research at Equinomics Research Private Limited.
According to Subho Moulik, the founder and CEO of Appreciate, market expectations and historical precedent indicate 75+ additional basis points remain likely, with rates potentially reaching 3.25-3.50 per cent by late 2025.
How will the US Fed rate cut impact the Indian stock market?
Investors will focus on Powell’s tone and assessment of US growth and inflation more than the rate cuts. A dovish Powell can infuse some positivity in the market and strengthen the expectation that the central bank is considering a significant rate reduction. Nevertheless, the central bank may decrease the rate by 50-75 per cent during the current cycle.
“A 25 bps rate cut won’t boost the Indian stock market as it is largely discounted. A cumulative 50 bps or even bigger cut will be a positive for the Indian market. Powell’s commentary on growth and inflation will be on the radar of the markets. Trump’s tariffs are expected to drag growth lower while increasing inflation,” said Chokkalingam.
The US Fed’s rate cuts and dovish stance could help reverse the ongoing outflow of foreign institutional investors (FIIs), who have been aggressively selling Indian equities in the cash segment since July.
With valuations now appearing reasonable and expectations of an earnings revival strengthened by recent reforms, benign inflation, and a healthy monsoon, the Fed’s policy easing may emerge as an additional catalyst for renewed FII inflows into Indian markets.
“We witnessed ₹2 lakh crore FPI inflows in FY24 following initial cuts. Lower rates strengthen the rupee, reducing imported inflation while giving the RBI greater policy flexibility. This benefits both domestic and global portfolio strategies,” said Moulik.
However, the bigger positives for the market will be a trade deal with the US and a free trade agreement (FTA) with the European Union (EU).
India and the US have resumed their trade negotiations. US Trade Representative for South Asia Brendan Lynch is in India, leading the American side. Senior Commerce Ministry official Rajesh Agarwal will represent India during the meeting.
Meanwhile, according to media sources, the India-EU FTA negotiations are progressing well and are expected to be finalised by the end of the year. The 14th round of the negotiations is scheduled for 6th to 10th October.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
