The latest rate cut was seen as less hawkish than anticipated, a fine distinction that significantly influenced market sentiment. Arvind Sanger from Geosphere Capital in an interview to ET Now noted that while the Fed signalled only one cut followed by a wait, Chair Jerome Powell left the door open for another possible move in the next few meetings, though not in January. This subtle shift was enough to ease fears and lift markets, especially in the U.S., which continues to notch fresh all-time highs.
Capital flows also remain under close watch. Sanger highlighted that the U.S. has had a strong run for a long time, while emerging markets have lagged in the past couple of years. However, as growth picks up in other regions and if President Trump pushes the Fed toward a more dovish stance, dollar weakness could emerge, prompting investors to look for non-dollar assets offering growth. Emerging markets, including India, could benefit, especially if domestic fundamentals continue to improve, helping attract inflows that largely bypassed the country in 2025.
Looking at future rate cuts, Sanger emphasized that a January move is unlikely, though a first-quarter cut is still possible. Markets are also speculating on the potential impact of a new Fed governor succeeding Powell, possibly with a dovish tilt. If this scenario unfolds, liquidity could rise, boosting global equities and benefiting non-dollar markets. Sanger explained that while the Fed may remain only slightly dovish in the near term, a more dovish stance in the second half of 2025 could drive further positive sentiment.
Overall, while the Fed’s policy action this week did not dramatically change the outlook, the subtle shift in tone has been enough to lift markets and spark optimism. Investors are now closely monitoring not just Powell’s words but also the political environment that could shape U.S. monetary policy in 2025. If the Fed continues on a dovish path, both U.S. and emerging markets may see renewed momentum, with non-dollar assets emerging as key beneficiaries.
