Moneycontrol Pro Panorama | Could rate rises be the reason for the Fed's latest skip?

 Moneycontrol Pro Panorama | Could rate rises be the reason for the Fed's latest skip?

In today's Moneycontrol Pro Panorama, we discuss how the IT sector's aversion to taking chances impacts employment and what's driving the IPO market.Can the BJP and its partners address the issue of Maratha Reservation?, Should investors be reassured by NTPC's revised capital expenditure plans?, and more

Moneycontrol Pro members get the Panorama email on market days. It provides quick access to articles posted on Moneycontrol Pro and goes above and beyond by providing background information on events, trends, and events that investors should be aware of. 

At the Federal Open Market Committee meeting in November, the US Federal Reserve (Fed) kept interest rates at 5.25–5.5 percent for the second consecutive meeting. This suggests that policymakers are satisfied with the results of previous tightening initiatives, which include quantitative tightening of more than $1 trillion and a cumulative 525 basis point increase in interest rates.

Does this suggest a short-term turnabout and the end of rate increases?

Signals are currently conflicting. Indeed, with core inflation at 3.7%, US inflation numbers seem to be slowing. However, the glide path seems to be moving slowly toward the 2% target post. In addition, the strong US economy keeps producing positive results, such as low unemployment and strong retail sales figures. These demand-related variables continue to give rise to worries that inflation would not abate as quickly as anticipated.

The Fed anticipates that tighter banking and credit conditions will have an impact on hiring, inflation, and economic activity in addition to hiking benchmark rates. According to Colby Smith of the Financial Times, "the view that the Fed can take a less hawkish stance on rates has also been bolstered by the sharp tightening of financial conditions over the past two months, following a surge in long-term interest rates."

According to US economic statistics as well as Fed Chair Jay Powell's remarks during the press conference, the central bank would proceed "carefully." Naturally, all eyes are now focused on the next FOMC meeting in December, when possibly the demand of the holiday season will provide further insight into the effectiveness of the choices made so far on policy.

Rates are set to remain "higher for longer" until then. Bonds are appealing because of US Treasury longer-term rates around 5%, which encourages a shift in capital to this asset class. Anubhav Sahu of MC Pro Research said, "The longer the yields remain at current levels, the more adverse will be the case for equities."

However, for the time being, international and Indian stock markets are rejoicing at the US Federal Reserve's second straight pause and hope for a quick turnaround. However, given the market's high valuations, which might become pricey if the pace of profits declines, Indian investors would be well advised to exercise caution.

The S&P Global India Manufacturing Purchasing Managers Index (PMI) declined from 57.5 in September to 55.5 in October in this setting. The fact that the consuming sector saw a noticeable downturn was a crucial lesson learned. In this examination of the PMI statistics, Manas Chakravarty writes, "This does not sit well with anecdotal evidence of burgeoning festive season demand."

Using our research team's expertise

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MapmyIndia: Cautious valuation is necessary at this juncture of margin and growth

Tata Consumer Products: Strong performance in a challenging work environment

PNC Infrastructure: Q2 results fall short of expectations; near-term outlook moderates

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Chart of the Day: Why is the IPO market so hot right now?

Less IT employment reflects the industry's aversion to taking chances.

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Why the topsy-turvy Conservative leadership does not pose an imminent danger to the collapsing Rishi Sunak government

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