US Fed expected to hold rates; Indian equities look beyond, eye geopolitical tensions

Fed remains focused on its dual mandate. Its preferred inflation gauge rose 2.6 percent in March, above its 2 percent target, while the labour market remains resilient.

Hopes of a rate cut from the US Federal Reserve will likely be dashed as the central bank prepares for its policy meeting on Wednesday, the first since President Donald Trump announced "Liberation Day" tariffs on April 2.

With inflation still running above target and the job market holding steady, the Fed is expected to keep its benchmark interest rate unchanged at 4.25–4.5 percent—the level it has maintained since January. Market indicators reflect near-unanimous expectations of a pause, with CME Group’s FedWatch tool assigning just a 3.2 percent chance to a rate cut. Still, investors will look forward to Jerome Powell's commentary on rate cuts in the future and the possible impacts of trade tariffs.

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Officials have repeatedly signalled that they are in no rush to ease monetary policy. Their cautious stance reflects concerns about lingering price pressures and uncertainty over the long-term effects of President Donald Trump’s tariff-led trade policy.

Economists say the tariffs, which came into effect in April, could eventually drive up costs for consumers and weigh on hiring. But so far, hard data has not shown significant stress. Inflation remained subdued in March, and unemployment held firm at 4.2 percent in April—levels the Fed sees as consistent with a healthy labour market.

Still, caution is growing among consumers, who fear the full impact of tariffs may not show up for several months. Some worry the resulting squeeze on costs and confidence could even trigger a slowdown or recession.

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For now, though, the Fed remains focused on its dual mandate. Its preferred inflation gauge rose 2.6 percent in March, above its 2 percent target, while the labour market remains resilient. That mix leaves little room for immediate policy easing. Looking ahead, the path to rate cuts depends on whether inflation continues to cool and whether signs of economic weakness grow stronger. Until then, the Fed is likely to stay the course—watching, waiting, and in no hurry to cut.

Indian markets have already priced in a status quo from the US Federal Reserve at its upcoming policy meeting, says Aishvarya Dadheech, Founder and CIO of Fident Asset Management. The Indian market is currently more sensitive to subcontinental geopolitical developments, such as the potential for prolonged conflict against Pakistan following the Pahalgam attack. Last night, tensions were exacerbated as India launched 9 missiles at various terror sites in Pakistan.

On currency, he remains upbeat on the rupee, which has shown resilience despite global headwinds. “The rupee has strengthened significantly from its recent lows," he said, crediting the RBI’s effective liquidity management and India’s strong macro fundamentals.

Looking ahead, the Street expects RBI to consider two to three rate cuts over the coming months, depending on liquidity conditions. Still, Dadheech doesn’t see the Fed making any policy shifts until there’s clear evidence of inflation easing and the US economy stabilising.

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