Triggering a massive rally by the US Fed message, BSE Sensex is up 847 points at 70,431 points on Thursday. IT stocks are leading the rally with Infosys and HCL Tech up by more than 3 per cent.
The US Federal Reserve has left interest rates unchanged at a 22-year high of 5.25 per cent to 5.5 per cent as inflation continued to cool, signalling an end to its rate hiking cycle and possible rate cuts next year.
"Recent indicators suggest that growth of economic activity has slowed from its strong pace in the third quarter," the Federal Open Market Committee (FOMC) said in a statement on Wednesday after concluding a two-day policy meeting, the last in 2023, reports said.
Gauge Inflation: Fed chief
"Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated," the committee said.
On inflation, the central bank is "making real progress," but "we still have a ways to go," Fed Chair Jerome Powell said at a press conference Wednesday afternoon.
"If you look at 12-month measures, you're still well above 2 per cent -- you're actually above 3 per cent on core through November PCE," Powell said, referring to the Personal Consumption Expenditures price index, the Fed's preferred gauge for inflation.
Over the past three months, payroll job gains averaged 204,000 jobs per month, "a strong pace that is nevertheless below that seen earlier in the year," Powell said, noting that the unemployment rate remained low at 3.7 per cent.
The median unemployment rate projection in the Fed's newly released quarterly summary of economic projections (SEP) would rise somewhat from 3.8 per cent at the end of this year to 4.1 per cent at the end of next year.
In its statement, the central bank noted that tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation, adding that the extent of these effects remains uncertain.
According to the Fed's latest economic projections, FOMC participants revised up their assessments of GDP growth this year to 2.6 per cent but expect growth to cool, with the median projection falling to 1.4 per cent next year.
The latest action marked the third straight meeting where the Fed remained on hold, and many view that the Fed is done with its tightening cycle, which began in March 2022 amid surging inflation.
According to the newly released summary of economic projections, 17 out of the 19 Fed officials project that the policy rate will be lower by the end of 2024 than its current level, with most of them expecting rates to fall 50 basis points or 75 basis points.
Sensex zooms past 70K
The clear dovish message from the US Federal Reserve has set the stage for a smart Santa Claus rally in the coming days, and this can even trigger a pre-election rally that can take the markets to a series of new highs, says V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
The takeaway from the Fed's message on Wednesday is that the tightening cycle is over and three rate cuts are possible in 2024. The market expects four. The record breaking rally in the Dow will send many indices to new records, he added.
The crash in the US 10-year yield to 4 per cent will trigger large capital flows to India. The main beneficiaries will be the large caps, particularly the fairly valued large caps in banking. IT too is likely to attract buying.
Retail exuberance can lift the mid and small caps, too; but there is no valuation comfort in this segment, he said.
(With inputs from IANS)
