Nifty, Sensex set for gap down opening as Fed’s rate commentary disappoints

The US Federal Reserve did deliver a 25 basis point rate cut, a move that was already factored in by the markets.

Benchmark indices are likely to open with deep-cuts on December 19, mirroring the weakness across global markets after the Federal Reserve's cautious rate cut outlook dented sentiment. The US central bank forecasted for two rate cuts in 2025, lower than its previous estimates of four cuts.

GIFT Nifty futures also indicated a dismal start for the local markets, tumbling over 300 points to the domestic benchmarks.

The Federal Reserve slashed rates as per expectations, however, the shallow easing policy pencilled in for the next year was under expectations. US-based brokerages were expecting three or four interest cuts in CY25, so the dot plot disappointed investors, said Kranthi Bathini, Equity Market Strategist at WealthMills.

Further, he added that the key level to watch for in trade would be the 24,000-mark on the Nifty 50. "We've more or less bottomed-out, I believe. However, if the index slips below the level, we could see further weakness, but in the near to medium-term, my outlook for the markets is positive," Bathini said.

Geojit's Head Investment Strategist, Gaurang Shah added that the 23,800-24,000 was critical for traders. Foreign institutional investors have been selling relentlessly over the past few sessions, but the selling is likely to abate as the holiday season in the US approaches, causing volumes to dip.

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Global markets came under the fire amid broad-based selloff due to the Fed's disappointing 2025 dot-plot. US benchmarks dived 2.5-3 percent overnight while other major indices like Japan's Nikkei 225, South Korea's Kospi, Hong Kong's Hang Seng and China's CSI 100 were also deep in the red in early trade today.

The Fed adopted a cautious stance citing upside risks to inflation in 2025. The shift in approach reflects a "wait-and-watch" strategy as the central bank awaits clarity on the economic policies of the incoming Trump administration. Trump's economic policies includes tax cuts, higher tariffs, and reductions in regulations and immigration, presents conflicting implications for growth, employment, and pricing pressures.

With uncertainties surrounding the impact of these policies, the Fed expressed increased caution, acknowledging greater uncertainty in its inflation projections. To largely factor this uncertainty, the Fed also raised its inflation and growth forecasts while also reducing unemployment projections.

However, the Fed did deliver a 25 basis point rate cut, a move that was already factored in by the markets.

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