Nifty 50 Crosses 25,450 After US Fed Cuts Rates by 25 bps

The US Federal Reserve cut its benchmark interest rate by 25 basis points on 17th September 2025, citing a slowdown in job growth and rising risks to employment. This move, accompanied by signals of further easing, has immediate and wide-ranging effects on global financial markets, including Indian equities, capital flows, and gold prices.

Fed Rate Cut: Details and Powell’s Commentary

The Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate to 4% to 4.25%, marking its first rate cut since December 2024. Chair Jerome Powell highlighted that the key motivation was a weakening labor market, with job gains falling short of sustaining historically low unemployment. Powell acknowledged that inflation remains elevated above the 2% target, but he stated, “The labour market is weakening, and we don't require any further softening.” He said that the Fed’s policy indicated the probabilities of two additional rate cuts in 2025.

The FOMC statement stressed its dual mandate of maximum employment and stable inflation, stating that further policy decisions will depend on incoming economic data. Powell’s remarks highlighted risks on both sides, which are inflationary pressures and threats to employment.

Impact on Indian Markets

The Fed’s rate cut has prompted both optimism and caution among Indian market participants. Indian equities opened higher following the announcement, with benchmark indices like Nifty50 rose 0.46% touching a day high of 25,448.95. Market analysts believe that lower US interest rates could make India more attractive for global investors, especially with a softer US dollar and easier global liquidity conditions. The move can create room for the Reserve Bank of India (RBI) to also lower its key rates. A Fed rate cut typically helps foreign portfolio inflows into emerging markets, boosting stocks, bonds, and easing borrowing costs.

However, experts caution that in the wider aspect, the persistence of these inflows depends on broader risk appetite and domestic fundamentals. If the Fed signals a sustained easing cycle, Indian asset prices may benefit further, but any signs of worsening US economic data or global risk can reverse flows quickly.

Liquidity Outflow and Currency Trends

Historically, the US rate cuts tend to control capital outflows from emerging markets as the yield differential narrows. In 2025, Indian markets have already experienced volatility and seen instances of constant FII selling amid global uncertainty. Lower US yields now signal a possible reversal, as investors seek higher returns in growth markets like India. The Indian rupee has depreciated and is trading around Rs 88 per USD due to tariff. This could see near-term stability or modest appreciation if inflows continue until the US dollar remains under pressure. However, the sudden shifts in US bond yields or global sentiment still carry the risk of outflows.

Gold’s Importance and Outlook

Gold has soared to record highs in 2025, surged due to Fed easing, and geopolitical uncertainties. The latest rate cut has reinforced gold’s safe-haven appeal, and recently the spot prices surpassed $3,700 per troy ounce as the opportunity cost of holding non-yielding assets shrinks. Investors are increasingly allocating to gold amid concerns about continued inflation, global policy shifts, and declining trust in fiat currencies.