The U.S. Federal Reserve (Fed) has cut interest rates by 0.25 percentage points, setting the new range between 3.75% and 4%. This decision, announced on Wednesday, October 29, 2025, marks the second time the Fed has lowered rates this year, following a similar cut in September.

Why the Rate Cut?

The Fed's move comes amid concerns about a weakening labor market and broader economic uncertainty. While inflation has receded from its peak in June 2022, it remains above the Fed's 2% annual target. The rate cut is intended to temper any further decline in the job market. However, the Fed also faces challenges due to the current federal government shutdown, which limits access to key economic data.

Impact on Indian Markets

The U.S. Fed's interest rate cut can have several implications for the Indian markets:

• Increased Capital Inflow: Lower interest rates in the U.S. can make returns on U.S. assets less attractive, prompting foreign investors to seek higher returns in emerging markets like India. Increased foreign capital inflows into Indian equities can drive stock prices higher due to rising demand.
• Rupee Appreciation: A Fed rate cut often leads to a weaker U.S. dollar as investors move to higher-yielding economies. This can cause the Indian Rupee (INR) to appreciate against the U.S. dollar. A stronger rupee makes imports cheaper, which can be beneficial for India's oil imports.
• Lower Borrowing Costs: The Reserve Bank of India (RBI) may respond to the Fed's rate cut by easing its monetary policy, leading to lower domestic interest rates. This can encourage borrowing and investment, stimulating economic activity.
• Boost to Specific Sectors: Sectors like banking, IT, and capital goods may benefit from improved liquidity conditions resulting from the rate cut.
• Short-Term Impetus: Cheaper global liquidity, a weaker dollar, and foreign investors searching for yield could provide a short-term boost for Indian markets.

Market Reaction and Expert Opinion

Following the Fed's announcement, the Indian stock market opened lower. The BSE Sensex was trading down by 0.41%, while the NSE Nifty 50 was down by 0.42%. The GIFT Nifty, however, indicated a relatively strong opening for benchmarks.

Market expert Harshal Dasani suggests that a Fed rate cut has the potential to "reprice risk assets" across sectors like equities, bonds, and commodities. He also noted that another rate cut could initiate a policy easing phase, potentially leading to further rate cuts by the end of 2025. Avinash Gorakshakar anticipated the US Federal Reserve to cut its key benchmark interest rates by 25 basis points.

Cautions and Considerations

It's important to note that Fed Chair Jerome Powell hinted that another rate cut in December is not guaranteed. The Fed will be closely monitoring economic data and the balance of risks to determine its future course of action. Two policymakers dissented from the decision, with one calling for a deeper rate cut and another favoring no cut at all due to ongoing inflation. This divergence highlights the complexities and challenges the Fed faces in navigating the current economic landscape.