US Fed Keeps Rate Unchanged Thanks To Trump's Tariffs Risks; Sensex, Nifty Crash, What Will Turn Tide?

The US Federal Reserve decided to keep key fund interest rates unchanged to 3.5% to 3.75%, despite inflation rate staying above its target of 2%. Fed's chair Jerome Powell signalled that policy could ease once tariffs risk recede. Following the policy, Wall Street ended on a mixed bag, but US stock futures fall sharply on Thursday. Other global cues including Indian stocks followed suit. Sensex and Nifty both have crashed in the opening bell.

US Fed Policy Decision:

In its statement, FOMC said, "Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has shown some signs of stabilization. Inflation remains somewhat elevated."

While maintaining its objective o achieve maximum employment and inflation at the rate of 2 percent over the longer run, FOMC pointed out that uncertainty about the economic outlook remains elevated. It said, they are attentive to the risks to both sides of its dual mandate.

Hence, Fed decided to keep federal funds rate at 3.5% to 3.75%, unchanged from the previous policy.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Beth M. Hammack; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Anna Paulson. Voting against this action were Stephen I. Miran and Christopher J. Waller, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting.

Jerome Powell On Tariff Risks:

According to Powell, tariff-related inflation is expected to play out in the mid-2026, however, he emphasized that surge in prices due to higher tariffs will be a one-time effect rather than a persistent shock to inflation.

Adding he said that the recent surge in inflation is due to higher goods prices linked to tariffs, but it will not be elevated in the long term.

Powell believes that once inflation shows clear signs of easing, especially when tariff pressures peak, then the FOMC could begin monetary policy easing.

Powell has once again defied US President Donald Trump's pressure for steep rate cuts.

When Will Fed Cut Rates Ahead?

According to Ankita Pathak, Head - Global Investments, Ionic Asset, the US Federal Reserve kept policy rates unchanged at 3.50%-3.75%, a decision that was largely in line with market expectations and resulted in a muted market reaction. While inflation remains above the Fed's 2% target, long-term inflation expectations continue to stay well anchored. The Fed Chair provided limited guidance on future actions, reiterating a data-dependent, meeting-by-meeting approach.

"Any further deterioration in labour market conditions could warrant more than a 25 bps rate cut in 2026, which would likely keep the US dollar under pressure and support emerging market performance," she said.

Meanwhile, markets have reacted with mixed to bearish sentiment. US market is also underpinned by the quarterly earnings of mega companies.

US Stock Market Reaction:

US stock futures saw mild correction on Thursday as investors digested earnings from megacap tech firms alongside a widely expected decision by the Fed to hold rates steady. Dow futures slipped 0.3%, S&P 500 futures lost 0.2% and Nasdaq 100 futures shed 0.1%.

In after-hours trading, as per Trading Economics data, Meta Platforms surged nearly 8% after delivering a strong Q1 sales outlook, while Tesla added about 2% on better-than-expected Q4 results. By contrast, Microsoft slid 7% after reporting slowing cloud growth and issuing softer operating margin guidance for the current quarter. Market participants now turn their attention to upcoming earnings from Apple later on Thursday, as well as reports from Visa, Mastercard, Caterpillar, and Lockheed Martin. During regular trading on Wednesday, US equities finished mixed, with the Dow edging up 0.02% while the S&P 500 slipped 0.01%. The Nasdaq Composite gained 0.17%, supported by strength in semiconductor stocks, including Nvidia (+1.6%), Micron (+6.1%), and Intel (+11%).

Indian Stock Market Bleeding:

Sensex and Nifty dropped nearly 1% each in the early deals of Thursday. At the time of writing, Sensex is down by 500.93 points or 0.61% to trade at 81,843.75, which is near its intraday low of 81,831.90. In the meantime, Nifty 50 plunged by 162.95 points or 0.64% to trade at 25,181.30, which is also near the day's low of 25,194.25. Bank Nifty toppled marginally to trade around 59,466.75. India's volatility index is up 3%. Midcaps are under pressure, while small-caps trade in narrow range. Except for metals, PSU banks, realty and oil & gas stocks, all other indices are down. Nifty IT, Nifty FMCG and Nifty Consumer Durables have declined by 1% to 2%.

As per Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments, it is important to note that there is no change in the short to medium-term strategy of FIIs, which is 'sell India' and move the money to other performing markets. Therefore, unless there is some big announcement in the Budget nudging FIIs to return to India, they will continue to sell in India thereby dragging the market down.

How Budget & Fed Rates Will Impact Stock Market Ahead?

In Vijayakumar's view, markets can always surprise. Some positive news/event can trigger a rally in the market. There are rumours of a sudden announcement of a US-India trade deal. If that happens close on the heels of the path breaking India-EU-trade deal, that would be a major boost to Indian economy and corporate earnings in FY27, and therefore, the market will respond positively.

In case of US market, Pathak added that the Fed's current stance reflects a wait-and-watch approach amid elevated uncertainty. Labour market conditions show early signs of stabilisation, even as job creation remains modest. Economic growth continues to be resilient, supported by strong consumer spending and business investment, although stress persists in the housing sector. A potential dovish tilt in the coming months could reinforce the relative attractiveness of emerging markets over the US.