Fed signals three rate cuts this year; how will it impact equities and gold? Experts weigh in

The US Fed left the benchmark interest rates unchanged in the range of 5.25 per cent to 5.50 per cent.

Nishant Kumar
Updated21 Mar 2024, 10:21 AM IST
The Fed didn't change its plans for cutting rates and signalled it might cut rates three times this year.
The Fed didn’t change its plans for cutting rates and signalled it might cut rates three times this year.(Reuters)

As widely anticipated, the US Federal Reserve opted to maintain the status quo by leaving the benchmark interest rates untouched at the range of 5.25 per cent to 5.50 per cent, following a two-day Federal Open Market Committee (FOMC) meeting on Wednesday, March 20th. This decision marks the fifth consecutive instance of no change.

Moreover, the Fed didn't change its plans for cutting rates and signalled it might cut rates three times this year, even though prices have been going up a bit and the jobs market is still strong.

Also Read: US Fed keeps benchmark rates steady at 23-year high-mark, projects 3 rate cuts in 2024: 5 key highlights

As Mint reported, the policymakers sharply upgraded the US growth outlook for the year 2024 to 2.1 per cent from 1.4 per cent in December but left the headline inflation forecast unchanged. However, they slightly raised the outlook for annual core inflation, which excludes energy and food prices, to 2.6 per cent.

Also Read: US Fed leaves key rates unchanged: Full text from Fed's monetary policy statement

Will it boost equity markets, gold prices?

A rate cut by the Fed is a boost to the equity market as lower interest rates mean cheaper borrowing for businesses which helps them to expand their operations more easily, ultimately leading to increased profitability. Consequently, stock prices receive a boost as investors perceive a higher potential for returns amidst improved business prospects.

Also Read: Fed Officials Still See Three Cuts This Year

Moreover, Fed rate cuts tend to boost foreign capital inflows into emerging markets like India. As the outlook of the Indian economy remains strong, rate cuts will boost foreign capital inflow which can lead the market to new highs.

While the indication of three rate cuts is positive for the market, it may not trigger a strong bullish trend, some experts say.

The stock markets have been eagerly anticipating a rate cut for nearly a year, which has buoyed market sentiment. Experts pointed out that a considerable portion of the expected rate cuts may have already been factored into current market valuations.

"It is positive for the market. But if you look at the Fed rate and market cycle, the Fed rate went up to 5.25 but the market did not fall. It moved up only. That is because the market discounted peaking out rates. The market has already discounted rate cuts to a large extent. However, it may not be fully discounted. So, there is room for further uptick in the market. But if rate cuts are delayed beyond June and July, it may disappoint the market in the short term," said G. Chokkalingam, Founder and Head of Research at Equinomics Research Private Limited.

Also Read: Delayed rate cuts negative for Indian markets; investment opportunities galore in several sectors: Hemant Sood of Findoc

Chokkalingam expects gold prices to remain firm, supported by geopolitical uncertainty and rate cuts.

Shrey Jain, Founder and CEO of SAS Online believes the expectation of three rate cuts should further fuel investors’ interest in risk assets such as stocks and gold.

Also Read: Gold rate today hits new peak of 66,778 after US Fed meeting. Should you buy in current gold price rally?

"If gold crosses 2,250 per ounce mark, then $2,400 is possible this year. Lower interest rates are seen conducive for gold prices, along with rising geopolitical tensions," said Jain.

Jain expects the Reserve Bank of India to take cues from the US Fed and cut rates up to 50 basis points towards the end of 2024.

Jain suggested traders and investors should take the stock-specific approach and stick to their stop losses as the equity markets are staring at key developments such as the Lok Sabha election, the expectation of monsoon and a change of stance in monetary policy over the next three months.

"Recent correction indicates a pause in upward moving prices of stocks. Stocks should trade in a narrow range in the near term," Jain said.

Manish Chowdhury, Head of Research at StoxBox expects the year 2024 to be an overall good year for riskier assets. He believes other major central banks, too, may follow suit in the latter half of next year and cut rates.

"The current rally has legs to continue further, as large caps still have juice left in terms of valuation. Additionally, hopes of interest rate cuts by RBI, strong domestic flows, market optimism towards upcoming general elections, and lower crude oil prices should keep market sentiment supported," said Chowdhury.

Read all market-related news here

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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First Published:21 Mar 2024, 10:21 AM IST
HomeMarketsStock MarketsFed signals three rate cuts this year; how will it impact equities and gold? Experts weigh in

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