New Delhi: The US Federal Open Market Committee’s (FOMC) decision to maintain the federal funds rate at 4.25-4.5 per cent is appreciable, given the persisting geopolitical volatilities, trade uncertainties and the US administration’s decision on a 90-day tariff pause, economists and industry experts said on Thursday.
The US is witnessing an expansion of economic activity, with the unemployment rate at low levels.
“Uncertainty about the economic outlook has diminished but remains elevated. The Federal Reserve’s current stance on interest rates is commendable in light of the heightened uncertainty regarding the economic outlook; it strongly supports maximum employment and aims to return inflation to its 2 per cent target,” said Hemant Jain, President, PHDCCI.
Compared to May, US Fed Chair Jerome Powell did sound a little more concerned about tariff-led inflation, remarking that “ultimately, the cost of the tariff has to be paid. And some of it will fall on the end consumer.”
However, he also mentioned that he sees no signs of the economy weakening imminently, and that the Fed remains “well positioned” to wait and see the eventual impact of tariffs.
“The Fed is likely to wait for meaningful signs of weakness in the labour market before acting (while also looking-through transitory one-time price increases due to tariffs), which implies that the next cut may only arrive in September. Market pricing also reflects this, with pricing for a cut at 63 per cent, while July is at only 10 per cent,” according to Emkay Global Financial Services.
The Fed lowered its 2025 GDP forecast to 1.4 per cent (down 30 bps) and raised its core CPI estimate to 3.1 per cent (up 30 bps) — highlighting a challenging macro environment with rising price pressures and slowing growth.
“US equity indices stayed mostly flat, but short-term Treasury yields showed volatility. A potential 50 bps rate cut in 2025 could support global liquidity and benefit Indian markets, although risks from Middle East tensions and trade tariffs could limit upside,” according to Vaqarjaved Khan from Angel One.
Looking ahead, experts anticipate the Fed will continue to assess the impact of new information on the economic outlook and be ready to adjust monetary policy as necessary if risks arise.
(IANS)
