US Fed Reduces Key Rate By 0.50%, Impacting Global Economic Outlook

New Delhi, Sep 19 (KNN) The US Federal Reserve announced a reduction in its key lending rate by 0.50 percentage points, on Wednesday, marking its first rate cut since the pandemic began. This decision is poised to have substantial implications for the global economy.

Historically, the Federal Reserve adjusts interest rates in response to inflation and employment conditions. In 2022, the Fed began raising rates to address rising inflation, which was at its highest since the 1980s.

The recent rate cut reflects a shift in focus, potentially indicating concerns about economic slowdown.

The impact of this rate cut on the global economy may be multifaceted. According to Stefan Gerlach, Chief Economist, EFG Bank in Zurich, "The half-point cut by the Fed will ripple through other central banks’ interest-rate decisions and lead market participants to conclude that the US economy is slowing, perhaps leading to a global slowdown."

For emerging markets such as India, the reduction is likely to increase foreign investments as investors seek higher returns.

This influx of capital could enhance domestic investment, increase consumption, and spur economic growth. However, it also introduces the risk of inflationary pressures due to the increased liquidity in the market.

In response to the Fed's move, the Reserve Bank of India (RBI) might consider lowering its own policy rates to maintain a competitive interest rate differential.

Such a reduction could further stimulate economic activity but must be managed carefully to avoid exacerbating inflationary trends.

Overall, while the US rate cut presents opportunities for investment and growth in emerging markets, it also requires vigilant management to balance economic benefits with potential risks.

(KNN Bureau)