US Fed Decision Today: What's Expected, How Is Outcome Likely To Impact Market?

US Federal Reserve’s meeting on the interest rates in America is going to be concluded today and the decision will be announced at 11:30 pm (IST). Analysts expect a status quo in the Fed’s benchmark rate, which is hovering at a 23-year high of 5.3 per cent, after three straight higher-than-expected inflation reports.

The US Fed’s FOMC (Federal Open Market Committee) has raised the key interest rates in the country 11 times in a row, which ended July 2023. Since then, the Fed has maintained the status quo.

In the previous policy review on March 20, the policymakers themselves had projected three rate cuts in 2024. However, now traders envision just a single rate cut this year after the inflation reached a 4.4 per cent annual rate in the first three months of this year, which is higher from 1.6 per cent last year and far above the US Fed’s target of 2 per cent.

Palka Arora Chopra, director of Master Capital Services, said, “The market is anxiously expecting the FOMC meeting’s conclusion, even though no rate cut is expected. Analysts are especially interested in the language used by the Fed and any hints regarding future policy.”

The Fed Chairman’s remarks regarding the status of the economy and the outlook for inflation will also be monitored closely by the market, Chopra added.

Pravesh Gour, senior technical analyst at Swastika Investmart, said, “Expectations for the US Federal Reserve’s monetary policy decision are focused on how it reacts to the current state of the economy and its commitment to keeping prices stable while aiming for full employment. If inflation is high, the Fed may think about raising interest rates or making changes to its balance sheet to control rising prices.”

On the other hand, if the economy is struggling or unemployment is high, the Fed might keep policies lenient or introduce more measures to help the economy recover. These expectations highlight the Fed’s role in balancing economic stability while addressing both inflation and unemployment concerns, he added.

How US Fed Decides On The Interest Rate Decision?

The US Fed bases its monetary policy decisions on a number of factors, such as inflation, employment statistics, economic growth, and global economic developments. The Fed’s decision-making process is heavily influenced by its dual mandate, which calls for promoting price stability and maximum employment, said Master Capital’s Palka Arora Chopra.

She said the US central bank also considers how its policies may affect the larger financial system and issues related to financial stability. Another important factor to take into account is inflation, which the Fed seeks to maintain at or below its target rate of 2 per cent.

Swastika’s Pravesh Gour said, “The US Federal Reserve’s monetary policy decisions are shaped by a diverse array of factors. These encompass key economic indicators such as GDP growth, inflation rates, unemployment levels, and consumer spending. Central to its approach is maintaining inflation around 2 per cent through targeted policies.”

Additionally, the Fed places significant emphasis on achieving maximum sustainable employment. It closely watches financial market dynamics, including interest rates, stock values, and credit conditions, recognizing their potential impact on the broader economy, he added.

“Global economic trends, fiscal policy choices, and managing public expectations also weigh heavily in its decision-making process. Overall, the Fed employs a comprehensive analysis of these factors to fulfil its dual mandate of price stability and supporting full employment,” Gour said.

How Will US Fed Decision Impact Markets?

Palka Arora Chopra said the impact on the market depends on the hints and the language that the US Fed uses in their meeting regarding future policies and rate cuts as all the investors are interested in that.

“Hints suggesting a sooner rate cut might boost investor confidence therefore boosting the market whereas a late rate cut might diminish investor confidence leading to a negative sentiment in the markets,” she added.

Pravesh Gour said that with muted expectations for this policy change, the market impact is likely to be minimal. However, investors will be hanging on every word of the Fed chairman’s speech, dissecting his tone for any dovish hints.

“A perceived shift towards a more accommodative monetary policy could trigger a positive market response,” he said.