The US Fed missed an increase in interest rates on June 14 on anticipated lines, but its aggressive tone seems to have diminished market sentiments. It’s reported that the US Fed’s committee voted to hold its benchmark lending rate between 5 per cent and 5.25 per cent on Wednesday (June 14)) after ten consecutive rises since March 2022. However, the chairman of the Federal Reserve “Jerome Powell ”, said that the Central Bank considers that some further hike in rates will be necessary to reduce inflation by 2 per cent this year.
“Thinking about the future, nearly all the participants of the committee agree that by increasing the rate, inflation can be reduced by 2 per cent.” Jerome Powell stated this at a press conference after the decision on the rate was announced. The Federal Reserve shows no sign of slowing down the rate hikes until it can achieve its target of reducing inflation by two per cent this year.
At this point, the market was anticipating at least one cut by the end of the year. But, as it seems now, this is not the case. The rates will remain at sky-high levels until a proper target is achieved. The experts in the area speculate that interest rates will have a significant impact on the economy of the USA and have the power to influence emerging market flows. However, the prospect for the domestic market remains intact, so one should rightly focus on the domestic concept of the term.
Few analysts think that the Federal Reserve may be overestimating the inflation track and may not hike rates as projected.
The Federal Reserve’s decision to miss a rate hike was subdued by more unpeaceful than expected commentary. The Federal Reserve anticipates the fund’s rate to be around 5.6 per cent by the end of this fiscal year and 4.6 per cent by the end of the next year, 2024. Interest rates being higher than usual for a long time can impact global growth, which will probably harm the world market.
“The Federal Reserve’s decisions are dependent on data. It’s possible that just like the Federal Reserve underestimated inflation in 2021, it’s doing so now as well. There is a probability that they are overestimating inflation at present. If, by chance, actual inflation turns out to be lower than the Fed’s estimates, the Federal Reserve might not increase rates,”, stated Vijayakumar.
“India has the best growth rate in inflation. India can maintain its balance and is performing very well among the large economies of the world. India is rising at a rapid rate. The ideal investment strategy should focus more on domestic cycles, which will yield good results in the future. Investors should focus more on capital goods, finance, automobiles, and construction.” – Vijayakumar
However, some market analysts expect an upward risk in domestic inflation, which could have an impact on market sentiment. While the current domestic inflation trends are indicating a significant cooling off, the unpredictability surrounding the rainy season and valuations of equity in reward to other emerging markets pose additional risks.
The Director of Waterfield Advisors, “Kedar Kadam,” commented that “we expect an upward risk for domestic inflation, but these things can only be tested in time. If global interest rates continue to hike, then it becomes imperative for us to pay heed to the currency aspects.