Global analysis by Julius Baer predicts that the Fed will implement two more rate reductions of 25 basis points until December and one or more cuts until March.
It is anticipated that the tariff scenario would only temporarily raise US inflation, with the slowing economy and demand somewhat offsetting the tariff’s effects.
FOMC Rate Decision Overview
On September 17, the Fed’s rate-setting committee (FOMC) announced the much-awaited 25 basis point rate drop, bringing the Fed policy rate down to 4.00 to 4.25 percent. Following a nine-month delay by the Fed, this was the first rate decrease in CY25 since December 2024.
When making policy decisions, the FOMC considers its dual goals of maintaining full employment and stable prices. According to the Fed’s current view, employment increases have slowed and US economic activity has softened. The negative risks to employment seem to have increased, according to Fed Chair Jerome Powell. While higher than previous months, August’s unemployment rate of 4.3 percent is not very high by historical standards. Additionally, the Fed committee recognized that inflation has increased and is still rather high.
The plot of dots
One often used indicator to predict the expected future path of the Fed rate is the FOMC’s “dot plot”. For the current and next years, the dot map shows the Fed rate forecasts made by each member of the FOMC.
With regard to the rate estimates, the most recent dot plot makes a split home. While several FOMC members anticipate just one further rate decrease this year, the majority of members anticipate two additional rate cuts this year (i.e., by December 2025). According to the consensus, the Fed would only decrease rates once in 2026 and again in 2027, reaching a long-run neutral level of 3 percent.
Response of the global market
The Fed’s decision received a subdued response from the US market as a whole. Following the FOMC statement, profit-booking caused a little fall in the bond and equity markets. Powell’s description of the rate drop as “risk management” and the fact that it did not mark the beginning of a long-term rate-lowering cycle somewhat disappointed the markets.
The magnitude of the rate cuts was another way to split the dot plot. Does the Fed’s single rate drop forecast for 2026 convey a hint of hawkishness? Was there more of an insurance reduction in this rate action? Although the job figures are on the lower side, they are not too awful historically, and the employment data has been the main driver of the rate drop.
Global Markets Post-Fed
Furthermore, in the days before the FOMC meeting, world markets had already recovered, with the S&P 500 and the Nasdaq 100 setting new records, gold and silver also setting new records, the US Treasuries rising, and the US 10-year Treasury yield dropping by around 35 basis points to 4.0 percent levels.
With the highly anticipated rate cut now behind us and the Fed’s unclear message, it is possible that global markets will take a break and see some short-term profit booking, especially in equities and possibly gold and silver, which were sentiment-beneficiaries of the rate cut expectations. This is in contrast to the euphoria that characterized global markets prior to the FOMC.
Fed Rate Outlook Global
According to our worldwide analysis, the Fed will continue to lower interest rates by 25 basis points until December and then again until March. It is anticipated that the tariff scenario would only temporarily raise US inflation, with the slowing economy and demand somewhat offsetting the tariff’s effects. The FOMC is probably going to gradually shift from a restrictive monetary policy to a neutral one as a result of the balanced US growth forecast in the next months.
Although short-term and speculative speculators may take profits from the metal markets, our worldwide study on gold and silver is still “positive.” As the US economy cools, interest rates drop, and the currency depreciates, investors should continue to gravitate into the gold and silver markets, and central banks should start purchasing gold again.
Impact on Indian markets
Indian markets have lately been upbeat due to the general bullish attitude throughout the world ahead of the Fed meeting. The present decline in the US dollar is anticipated to continue when the Fed resumes rate decreases. Foreign Portfolio Investors (FPIs) have sold at extremely high levels in Indian markets this year.
However, given the dollar’s decline and the resumption of trade negotiations between India and the United States, as well as the fact that India’s economy is still one of the fastest-growing in the world, FPI sentiment for India should improve moving forward. Expected domestic profits growth would increase from Q3FY25, which will probably provide Indian stocks another lift in sentiment.