Business News Desk – The Federal Reserve announced monetary policy on December 18. In this, the interest rate was reduced by 25 basis points. This was already expected. Then, what is it that spoiled the mood of the markets across the world including America? On December 18, major indices of American markets fell by 4 percent. On December 19, a big fall was seen in Asian markets including Sensex-Nifty. This is a big blow for the Indian markets, because the market was already under pressure.
Now interest rate cut only twice in 2025
The Federal Reserve has cut the interest rate by 25 basis points. With this, the policy rate has now come down to 4.25 percent. The US central bank predicted an increase in economic growth and inflation. Also expressed hope that the pressure on unemployment rate will also reduce. This means that now the Federal Reserve’s strategy for 2025 has changed. Next year the US central bank will cut interest rates only twice. Earlier it was believed that the trend of reduction in interest rates in America would continue in 2025 also and the Fed would reduce the interest rates four times. Now it has become clear that there will be a cut of 25-25 basis points only twice next year.
Jump in dollar index and benchmark bond yields
The Fed’s forecast of cutting interest rates had a wide-ranging impact. The dollar index jumped to 108. The yield on 10-year American bonds increased to 4.5 percent. After the Fed’s policy came out on December 18, there was a big fall in the American stock markets. The S&P 500 index fell 3 percent. A big decline was also seen in other indexes including Nasdaq.
Investment in American stock markets will increase
The Federal Reserve’s December 18 comment has several implications. This is not only important for the American economy but it will also impact the global economy. America is the largest economy in the world. The Fed’s comments show that the US economy is in good health. The pressure on the job market is also decreasing. In the last two quarters, GDP growth in America has been around 2.8 percent. This is more than expected. Due to this, inflation has increased in the last few months. It seems that after Donald Trump becomes the President of America next month, there will be a change in the economic policies of the American government. In particular, Trump has been continuously talking about increasing tariffs and reducing taxes on companies. This will increase inflation.
Change in economic policy of the new government
Federal Reserve Chairman Jerome Powell has said that the job market is no longer under as much pressure as it was in 2019. Meanwhile, interest in US financial markets has increased worldwide after Trump’s victory in the presidential election. Trump is expected to reduce taxes on companies, promote industrialization and increase tariffs on imports. These measures will have a positive impact on the business of American companies. Reduction in tax will increase the earnings of companies. This is the reason why from November 5 till now, S&P 500 has given higher returns than other markets.
Pressure may continue on emerging markets including India
Its effect has been seen in other places also. Money has been flowing into US markets in the last 12 weeks. $185 billion has been invested in big American companies. Money has also gone out of Europe and Japan. There has been a sale of $14 billion in the Indian market in October and November. However, investments worth $2.7 billion have taken place so far in December. Investments will continue in American markets. The reason for this is that valuations are very high in many markets of the world including India.