US Fed cuts rates by 25 bps for third time:Loans to get cheaper after federal fund costs reduce, foreign investment may rise in countries like India

The US Federal Reserve has reduced the benchmark interest rates by 25 basis points (0.25%), bringing the federal funds rate down to 3.50%–3.75%. On October 29, the Fed had announced a similar 0.25% cut that lowered the rate to 3.75%–4.00%. This latest move comes amid signs of a cooling labor market and rising inflationary pressures. This marks the third consecutive rate cut by the Fed. Before this, rates were lowered by a combined 0.50% on September 17 and October 29, placing them in the ranges of 4.00%–4.25% and 3.75%–4.00%, respectively. The Federal Open Market Committee (FOMC) approved the reduction with a 9–3 majority. Commenting on the Fed’s decision, Madhavi Arora, chief economist at Emkay Global, said: (Gerome) Powell raised a few eyebrows in noting that that job growth continues to be overstated by around 60k/month, implying true job growth has perhaps been negative, which merits a more-neutral policy rate. But the message from the meeting was that the time for insurance cuts is over, and that further cuts will only come with material labor market deterioration. Fed’s Three Rate Cuts Last Year Last year, the Fed also implemented three back-to-back cuts: Following these cuts, interest rates stood at 4.25%–4.50%.
The September 2024 reduction was particularly notable as it came nearly four years after the previous rate cut in March 2020. Between March 2022 and July 2023, the Federal Reserve had raised interest rates 11 times in an effort to bring inflation under control. Arora said: Given expected growth resilience and elevated inflation, we feel Powell’s remarks raise the bar for future cuts. The additional cut(s) in 2026 is now well tied to how shaky the labor market gets ahead. We reckon the US labor market may remain soft until tariff pass-through is complete. Rate Cuts Could Boost Investment in India Market analysts believe the Fed’s latest rate cut is a positive signal for US equity markets, as cheaper borrowing will encourage companies to expand investment. The move may also benefit emerging economies like India, since lower US interest rates often lead to increased foreign capital inflows. Rate Cut Announced Amid Internal Fed Disagreements As in the October meeting, the Fed’s latest decision came with notable dissent. In October, disagreement emerged from both ends of the policy spectrum: A similar divide resurfaced this time. Fed Chair Jerome Powell said further rate cuts would only be considered if there is clear and significant deterioration in the labor market. As of the latest September data, unemployment stands at 4.4%, while core PCE inflation is 2.8%, still above the 2% target.
However, November’s employment and inflation data—delayed by the government shutdown—will be released only after the Fed meeting. These reports are expected to influence future policy decisions. Policy Rate: A Key Tool for Managing Inflation The central bank’s primary instrument for controlling inflation is the policy rate. ​