Fed holds rates steady and cuts future meetings; stronger dollar outlook pressures emerging markets

The U.S. Federal Reserve held its benchmark interest rates unchanged between 3.75% and 4.0% at its October policy meeting. The 12-member committee had a 10:2 voting pattern for maintaining the status quo, while Governor Lisa Cook and Cleveland Federal President Beth Hammack voted in favour of a 25 basis points hike. 

The Fed decision comes against the backdrop of sticky inflation, with the central bank awaiting more incoming economic data before changing the Fed Funds target range.

The Fed’s policy decision was broadly in line with market expectations, with Federal Reserve Chairman Kevin Warsh announcing the Fed would reduce the number of Federal Open Market Committee (FOMC) meetings beginning 2027. 

One of the FOMC meetings from next year onwards will exclusively address broader monetary policy strategy than rate-setting. In 2028, the Fed is expected to hold two meetings focused on monetary policy strategy, with the rest six meetings for policy, Mr. Warsh said.

While the policy decision was factored in by market participants, the absence of forward guidance by Mr. Warsh makes gauging the longevity of higher interest rate regime uncertain.

“I don’t believe in forward guidance, absent exigent circumstances, absent a crisis,” Mr. Warsh said. The market currently prices another rate hike by a quarter percentage point in December. 

Implications for Indian markets 

The U.S. Fed is expected to keep rates elevated, making U.S. Treasuries and the dollar relatively more attractive than emerging market (EM) economies for foreign investors. Combined with the escalating West Asia crisis, EM economies are expected to witness volatility and foreign fund outflow, economists noted.

On Thursday (October 29, 2026), the Indian market did not dramatically react to the Fed’s rate decision as it was mostly expected. 

However, the Indian rupee declined to its lowest level in nearly 2 weeks on Thursday (October 29, 2026) following continued dollar demand. The rupee traded between 95.30-95.36 a dollar, down 8-14 paise from its previous close. While most other Asian currencies traded higher following the rate-decision, the Indian rupee continued to weaken. 

However, economists are of the view that rupee is currently priced based on fundamental concerns and not on interest rates. This means the rupee’s depreciation is a direct result of risk-averse sentiment amongst investors amid the current escalating geopolitical situation.

The stock market too traded lower in early trade but trimmed losses, with the Sensex trading 852.58 points higher to 74,098.61 at 2.30 p.m. The Nifty 50 was trading above 22,900. Analysts note that the Nifty must trade below 22,500 for bearishness to pertain.