Trump has consistently pushed for aggressive rate cuts to counter the economic drag from his own tariff policies and immigration curbs.
The US Federal Reserve is widely expected to announce a 25 basis point (bps) interest rate cut at the end of its two-day Federal Open Market Committee (FOMC) meeting on September 17. While such a move may already be priced into global markets, the spotlight will be on Fed Chair Jerome Powell’s commentary on inflation, growth, and policy outlook.
Why the Fed Is Cutting Rates
The expected reduction comes amid a combination of sticky inflation, weak labor market data, and political pressure from US President Donald Trump for deeper cuts. Powell had hinted at possible “policy adjustments” during his Jackson Hole speech on August 22, citing a changing risk balance with inflation still elevated and employment under strain.
- US Jobs Market: The economy added only 22,000 jobs in August, down from 79,000 in July. Revisions show 9,11,000 fewer jobs in the year to March than previously estimated.
- Unemployment: The jobless rate rose to 4.3% in August from 4.2% in July.
- Inflation: US Consumer Price Index (CPI) rose 2.9% in August, while the Fed’s preferred inflation gauge, the
PCE index, remained steady at 2.6% in July.
Given this backdrop, experts expect the Fed to pursue a gradual easing cycle, with total cuts of 50–75 bps by year-end.
Trump’s Pressure on the Fed
Trump has consistently pushed for aggressive rate cuts to counter the economic drag from his own tariff policies and immigration curbs. His influence appears to be growing: the Senate confirmed Trump’s top economic adviser, Stephen Miran, to the Fed’s Board of Governors this week. Analysts say this adds a layer of political pressure on Powell and the Fed’s decision-making.
Impact on Indian Stock Markets
For India, the implications hinge less on the size of the immediate cut and more on Powell’s tone:
- 25 bps Cut Already Priced In: Analysts believe Indian equities have largely discounted a small cut.
- Larger Cuts Could Spark Inflows: A cumulative 50–75 bps reduction could renew foreign portfolio inflows (FPI), reversing the outflows seen since July.
- Rupee and Inflation Relief: Lower US rates tend to strengthen emerging market currencies, including the Indian rupee, reducing imported inflation and giving the
RBI more policy flexibility.
G. Chokkalingam, founder and head of research at Equinomics Research, noted, “A 25 bps cut won’t boost the Indian stock market much. A cumulative 50 bps or bigger cut will be positive. Powell’s commentary on growth and inflation will be on the radar.”
Subho Moulik, founder and CEO of Appreciate, added, “Markets expect an additional 75 bps of cuts by late 2025. If delivered, this could strengthen foreign inflows into India, benefiting equities and the rupee.”
Trade Negotiations in Focus
Beyond Fed policy, Indian markets are also watching the progress of India–US trade negotiations and talks on a free trade agreement (FTA) with the European Union. Both could provide long-term support to Indian equities. The 14th round of India–EU FTA discussions is set for October.
A 25 bps Fed rate cut is almost certain, but the real trigger for Indian equities will be Powell’s guidance on future policy moves and inflation risks. A more dovish Fed stance could set the stage for renewed foreign investor confidence in Indian markets, complementing domestic drivers like reforms, strong monsoons, and an earnings revival.
