For Fed, RBI, it's same battle, different fields

The US Federal Reserve (Fed) is back to a pause again. Following a status quo in June, and a 25 basis point (bps) rate hike in July, the Fed held its policy rate steady in September, in line with market expectations. With this, after a spate of rate hikes since March 2022, the benchmark Fed funds rate now stands at 5.25-5.50%, the highest since 2001.

- Rupali Sarkar

The Fed’s decision to hold rates is not surprising as pricing pressures in the US have eased significantly from the highs. For instance, headline consumer price index (CPI) inflation has come off record highs, core inflation (CPI excluding food and energy prices) was at a multi-month low in August, and long-term household inflation expectations remain contained.

It helps that the central bank believes the current monetary policy stance will continue to weigh on economic activities, hiring, and inflation.

However, the policy guidance is more hawkish than expected. First, the Fed has reaffirmed that further tightening cannot be ruled out.

Second, its economic projections pencil in that the consequent rate easing cycle next year is likely to be shallow i.e. lesser quantum of rate cuts.