Federal Reserve keeps interest rate unchanged, guides for two more cuts in 2025, US markets rally 1%

The Federal Reserve kept the policy rates steady for the second consecutive meeting as recession fears and steady inflation remain major concerns for the US economy. In addition, the uncertainty induced by the trade war added more worries to the Federal Reserve’s decision-making.

The Federal Open Market Committee ( FOMC) voted to hold the interest rates in the range of 4.25% to 4.5% and reduce the balance sheet. Jerome Powell highlighted that inflation has moved up partly due to response to tariffs and may delay the course of rate cuts further this year”. However, the Fed official’s forecast indicated two quarter-point rate cuts in 2025.

The Governor also marked down the economic growth projection for this year, while boosting the estimates for inflation. He further said, the slower economic growth and higher inflation balance out each other, helping the Federal Reserve to maintain their previous growth outlook on the economy unchanged. The Federal Reserve now expects US economy to grow at 1.7% versus 2.1% earlier, raises unemployment forecasts from 4.3% to 4.4%, core inflation from 2.5% to 2.8%.

While speaking on the tariff implications, the governor cited the impact as transitory and said that it would be challenging to say with confidence how much inflation will be tamed due to tariffs and how much from other factors.

US Markets rally

In response to the Federal Reserve’s unchanged policy stance and indicating two rate cuts further in 2025, the US markets rallied over 1% across the board. The Dow Jones jumped 384 points, S&P 500 jumped 1.08% and NASDAQ jumped 1.3% led by a rally in tech stocks. Shares of big-tech companies like Nvidia, Broadcom, and Alphabet rallied in the range of 2% to 3.4% on Wednesday. Shares of Tesla jumped 4.7% after securing $1 billion in funding.

Gold extends gains

The gold prices continued to hit new record highs after the Federal Reserve decided to keep interest rates steady, acknowledging moderately high inflation and slowdown indications in the US economy. The investors chased precious metals as gold prices hit a new record high of $3,050 per ounce on Thursday morning, extending overnight gains.

Asian Markets

The Asian markets opened mixed on Thursday morning despite positive global market cues from the Wall Street gains overnight. The Korean opened in green with marginal gains and Hong Kong and Chinese indices traded lower with nearly 0.5% losses on Thursday morning. The Japanese markets are closed on Thursday. The Chinese Central Bank held their LPR (Lending prime rate) steady at record low levels last changed in October 2024.

Taking cues from positive global markets, Indian markets are expected to open positive on Thursday morning. The GIFT NIFTY futures traded 90 points higher at 23,074, indicating a gap-up opening for Indian markets.