The US Fed has cut interest rates to 0.25%. This move can have an effect on the Indian Stock Market. However, it may not have that much of a significant impact on India as of now. But since Powell pointed to more cuts, there can be bigger changes. Changes such as more investors willing to take risks, dollars flowing into India, and IT seeing gains. Having said all that, the main drivers are still India’s own reforms and the possible trade deal with the US. Here’s about the US Federal Reserve rate cut (on September 17). Learn more.
What Did the US Fed Do?
The US Federal Reserve (Fed) cut its benchmark interest rate by 25 basis points (bps) on September 17, 2025. Here’s a simple breakdown:
- 1 basis point = 0.01%
- So, 25 bps = 0.25%
- The previous rate was 4.25%.
- The new rate is 4%.
This decision has come to light after the Federal Open Market Committee’s 11:1 vote.
Why Did the US Fed Cut Rates?
The US economy in recent times has shown uncertainty and stress, especially in the job market. Inflation is evident but not prominent or uncontrollable at the moment. So the Fed thought it was the best time to cut down a little to prevent any bigger damage later. They called it the “risk management cut.”
What Did Powell (Fed Chair) Say?
Notably, the Fed didn’t decide on a preset path. It seems like they will decide later, based on new data. However, he hinted that the Fed will come up with more cuts in the near future, and called it a “dovish” signal.
Here are the projections:
- End of 2025: rate could be around 3.6%
- End of 2026: 3.4%
- End of 2027: 3.1%
(Well, this is 25 bps lower than earlier estimates back in June.)
“The median participant projects that the appropriate level of the federal funds rate will be 3.6 per cent at the end of this year, 3.4 per cent at the end of 2026, and 3.1 per cent at the end of 2027. This path is 1/4 percentage point (25 bps) lower than projected in June,” said Fed Chair Jerome Powell.
Immediate Effect in the US
- The Dow Jones (stock market index in the US) jumped to 500 points, later slipped, and then rose.
- Its volatility at the moment (meaning up-and-down movement).
- As the cut was expected, the market didn’t react much.
How Does This Affect India?
A 25 bps alone will not affect the Indian market, as the investors already price it in. Since Powell pointed out more cuts, these will likely happen:
- Enhance the global risk appetite so investors will take risks.
- The returns on US bonds will likely go down.
- The cuts will weaken the US dollar, and more money will flow into emerging markets like India.
- If these cuts happen, India will see better foreign investments.
Which Indian Sectors/Stocks Could React?
- Especially the IT companies like TCS, Infosys, HCL Tech, as they earn in dollars. If the cuts happen and the dollar weakens, their revenues will also be affected.
- Next, the Banks and financials like HDFC Bank, Kotak, SBI, Bajaj Finance, M&M Finance, and PFC will see a positive impact as the foreign inflows can boost them.
What Experts Say?
“The Fed indicated and the market expects two more rate cuts this year. However, the expected and discounted rate cut didn’t trigger any reaction in the market. The Fed rate decision is unlikely to impact the Indian market,” said Vijayakumar, Chief Investment Strategist at Geojit Investments.
“Should the Fed go for one or two additional reductions this year, global risk sentiment may improve — lifting equities, including Indian markets, while easing bond yields and pressuring the dollar,” said Ajit Mishra, SVP of research at Religare Broking.
“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,” said G. Chokkalingam, founder and head of research at Equinomics Research Private Limited.
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