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The dot plot is a tool used by the US Federal Reserve to signal its outlook on interest rates. In the just ended meeting of the Fed Open Market Committee, it has taken a hawkish turn although nothing is expected to happen this year.
The plot shows that two rate hikes are likely in 2023. Thirteen out of the 18 members expected at least one hike in 2023 versus seven in March. Inflation is clearly beginning to bite. The Fed’s inflation estimate for the year is 3.4 percent, one percentage point higher than what it had projected in March. US treasury yields and the dollar climbed.
What does this mean for Indian equities?
Now, 2023 is still a year and half away. And the dot plot doesn’t have a great record of accuracy. But the inflation numbers are there for all to see.
This hawkish turn and increasing uncertainty about higher inflation are enough to spook the markets. Higher US treasury yields, interest rates and a stronger dollar all don’t augur well for Indian equities.
At the same time, a pace of vaccination that is not as high enough as desired and poor consumer confidence that threatens to dampen the economic recovery threaten to rein in runaway local equities.
For a comprehensive analysis of the impact of the US Fed’s move on Indian equities, click here. For another view on the Fed meeting from the FT (exclusive access for Pro subscribers), click here.
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Technical picks : Tata Steel, Torrent Power, Dhampur Sugar and Coal India (These are published every trading day before markets open and can be read on the app)