IT stocks rise after Fed Chair Jerome Powell said the time has come for policy to adjust; NIFTY IT gains over 1%

IT stocks gained on Monday after Federal Reserve Chairman Jerome Powell indicated last week that a rate adjustment may be in the offering.

Why do Fed rate cut impact Indian IT stocks?

IT stocks are often categorised as rate-sensitive stocks. A reduction in the interest rates in the United States will result in a weaker dollar, cheaper borrowing, and increased liquidity. Lower borrowing costs could result into higher IT spends from US region which major importer of Indian IT services. A conducive business environment, along with an improvement in corporate balance sheets, tends to make tech stocks more attractive.

Time for policy adjustment is here

The Federal Reserve Chairman said, “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks,” he said in his speech titled “Reassessing the Effectiveness and Transmission of Monetary Policy” at the Jackson Hole summit in Wyoming on Friday.

Powell said that the Fed will do everything to support a strong labour market as it makes further progress toward price stability. With an appropriate dialling back of policy restraint, there is good reason to think that the economy will get back to 2% inflation while maintaining a strong labour market, he argued.

“The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labour market conditions,” Powell stated.

Following dovish comments from Powell, major Wall Street indices ended higher, with the Nasdaq Composite, the S&P 500 and the Dow recording over 1% gains on Friday.

The Fed Chair also stated that it seems unlikely the labour market will be a source of elevated inflationary pressures anytime soon. “We do not seek or welcome further cooling in labour market conditions,” he said.

The Nifty IT index has gained over 15% since the beginning of the year. The index has risen nearly 30% in the last year.