Both international and domestic markets remain volatile as the two-day crucial Federal Open Market Committee (FOMC) meeting is set to begin on September 17.
The Fed is widely expected to cut rates due macro indicators like muted inflation, slowdown in GDP growth, and an increase in the unemployment rate.
As per US data there has been a five month continuous decline in the annual inflation rate which fell to 2.5% in August as compared to 3.5% in March 2024.
Additionally, there has been a marked slowdown in the GDP growth rate, which decreased from 4.9% in the third quarter of 2023 (Jul-Sept) to 3% in the second quarter of 2024 (April-June).
Further, as per data the US unemployment rate increased to 4.2% in August 2024 from 3.8% in the prior year.
Thus, easing inflation, sticky GDP growth at a lower level and an increase in unemployment rate, strongly suggest that a rate cut in the economy is imminent.
In the last 25 years, the Fed had gone for full-fledged rate-cut cycles three times, with one in 2001, the second in 2007-08 and the third in 2019-20.
The 2001 and the 2007-08 rate cut led to a drop of about 40% and 60% in the NIFTY50 index, respectively.
However, the Fed rate cut in 2019-20 had a positive impact not just on the domestic market but also on the US market with the S&P 500 and Nifty rising 12% and 5%, respectively.
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