US Fed Meeting: Will Rate Hikes Spark Market Volatility?

The US Federal Reserve's upcoming meeting has sparked debate among experts about whether the central bank will delay rate hikes. Despite expectations that interest rates may remain steady, there is a possibility of a surprise hike in July, which could have significant implications for the Indian stock market.

Inflation in the US has been above the Fed's 2% target for five years, and oil prices have risen amid tensions in West Asia. The June inflation print gave the Fed breathing room, but the May CPI was its highest level since April 2023, driven by a 23.5% surge in energy costs.

Dr Joseph Thomas, head of research at Emkay Wealth, believes that the majority of market participants expect the Fed to leave rates unchanged in July and hike them in September or December.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said that even though inflation is a concern, the Fed is likely to hold rates now and move to a rate hike in the next meeting. Tanvi Kanchan, Associate Director at Anand Rathi Share and Stock Brokers, pointed out that expectations are for the Fed to hold rates steady at 3.50% - 3.75%, which would mark the fifth consecutive meeting with no change.

The implications of a rate hike in India would be significant, according to experts. Dr Thomas said that rising yields in the US would drive foreign investors to US bonds and away from emerging market equities, while VK Vijayakumar warned that a surprise early hike would have slightly negative implications for Indian markets.

Kanchan emphasized that the risk is not just a July hike but the cumulative pressure of a hawkish Fed, persistent FPI selling, a weak rupee, and new US tariffs landing simultaneously. The domestic demand story and DII flows remain India's strongest buffer, but they are not unlimited shock absorbers.