The US Federal Reserve has cut interest rates by 0.25% for the second consecutive time, bringing the policy rate range down to 3.75% to 4%. This move comes amidst concerns over inflation and rising unemployment. There is now speculation of another rate cut in December. This decision could also impact the Reserve Bank of India's upcoming policy.
Fed Rate Cut: The US Federal Reserve, on Wednesday, October 29, 2025, cut interest rates by 0.25% for the second consecutive time, making loans cheaper. This decision was made at a meeting chaired by Chairman Jerome Powell, amidst signs of declining inflation and economic slowdown. The Fed's policy rate is now in the 3.75%–4% range. The market expects another cut in December. This move has boosted the US stock market, while also increasing pressure on the RBI to cut rates in India.
Relief for the Second Consecutive Time, Fifth Rate Cut Overall
The Federal Reserve has implemented a total of five rate cuts since September 2024. Adding all these cuts, the total reduction amounts to 1.50 percent. The Fed's policy rate is now in the 3.75-4 percent range.
The Fed's move was already anticipated. In fact, when the latest US inflation figures were released, they turned out to be slightly lower than expected. Inflation settled at 3 percent, whereas the market had anticipated 3.1 percent. Following this, market speculation intensified that the Fed would certainly implement a 0.25 percent cut.
Indications of Another Cut in December
Signals from the Fed's recent meeting suggest that another 0.25 percent cut could occur in the final policy meeting in December. Furthermore, indications of two to three more rate cuts have been given over the next two years. However, the Fed has also clarified that future cuts will depend on the inflation level.
Currently, the US inflation rate remains above the Fed's target of 2 percent. Therefore, additional cuts will only be possible when this rate falls between 2 and 2.5 percent.
Major Decision Amidst US Shutdown
This decision by the Fed comes at a time when the US has been experiencing a partial government shutdown since October. While this has had a minor impact on the economy, the Fed proceeded with rate cuts, overlooking it. The Federal Open Market Committee approved the proposal with a 10-2 majority. Governor Stephen Miran dissented, stating that a half percent cut should have been made. Conversely, St. Louis Fed President Jeffrey Schmid expressed a completely opposite view, saying that no cuts should have been made at this time.
The Fed also stated that, according to available indicators, economic activity is growing at a moderate pace, while inflation has remained somewhat elevated since the beginning of this year.
Why Interest Rates Had to Be Cut
Core inflation in the US has remained stable at around 3 percent for the past three months. This rate is approximately 1 percent higher than the Fed's target. Despite this, the Fed decided to cut rates because employment figures have declined. The unemployment rate was recorded at 4.3 percent in August, which is the highest in the last year.
Furthermore, due to the ongoing shutdown since October 1, several government economic data points have not been released. Consequently, the Fed had to make its decision based on incomplete information.
Impact of Fed's Decision on Indian Markets
Following the Fed's rate cut, there are also signs of an uptrend in Indian markets. On Wednesday, the Sensex closed up by 369 points at 84,997 points. Meanwhile, the Nifty closed above 26,000 points for the first time.
An upward trend may also be observed in Thursday's trading. Due to the Fed's decision, investor sentiment will shift towards the equity market. Concurrently, prices of gold and silver are also registering increases in the futures market. Gold rose by ₹1,053 to reach ₹1,19,646 per 10 grams, while silver prices increased by approximately ₹1,800 to ₹1,46,140 per kilogram.
Will Loans Also Become Cheaper in India?
Now, the biggest question is whether the Reserve Bank of India will also cut interest rates. Pressure on the RBI has increased following the Fed's decision. Inflation figures in India are under control, and October's data is also expected to be lower. The next meeting of the RBI's Monetary Policy Committee will be held between December 3 and 5.
Market estimates suggest that the RBI might implement a 0.25 percent cut. Some experts are also indicating the possibility of a 0.50 percent cut.
If this happens, the RBI's policy rates would reach around 5 percent. In this scenario, India would also appear to be in line with the Fed's policy.
