Will RBI do a Fed in October after Jerome Powell’s first rate cut of 2025?

Will the Fed’s first rate cut of the Donald Trump 2.0 era be topped up with more reductions in the near future? Describing the September policy action — wherein the US central bank’s rate-deciding committee decided to cut the key funds range by a quarter per cent as widely expected — as a “risk management cut”, Zee Business Managing Editor Anil Singhvi expects two more reductions by December, followed by only one cut the next year. 

The market guru also said that the Fed rate cut was along expected lines. 

While announcing the latest policy changes, Fed Chair Jerome Powell mentioned a “weak job market” and “rising inflation” continuing to be challenges while acknowledging the higher “downside risks to employment”.

He also said that the FOMC remains “attentive to the risks to both sides”, referring to the central bank’s dual mandate of ensuring maximum employment while maintaining price stability. 

The Federal Open Market Committee guided for additional rate cuts amounting to 50 bps in 2025. 

Powell said the FOMC will: 

• Carefully assess incoming data
• Carefully assess evolving outlook
• Carefully assess balance of risks
• Ensure that its assessments take into account a wide range of information, such as: 
  • Readings on jobs market conditions
  • Inflation pressures
  • Inflation expectations
  • Financial developments
  • International developments

Will RBI follow in Fed’s footsteps, again? 

Expectations are already building up of an RBI rate cut in its October review given the room for monetary easing, say some analysts. 

“Fed rate cuts and lower inflation due to GST cuts increase the odds of an RBI rate cut in October 2025,” said Deepak Agarwal, CIO-Debt at Kotak Mutual Fund.

A significant round of GST rate cuts for the public at large, covering iterms ranging from automobiles to FMCG products, is set to take effect from September 22. A quick take on GST 2.0 rate cuts

“Fed action seems to be prioritising growth… The FOMC is guiding for 50 bps more rate cuts in 2025… despite both growth and Core CPI being revised higher for Q4 CY 2026. The recent spike in the unemployment rate seems to be the main driver for the FOMC guidance,” said Agarwal.

He also pointed out that for the first time, the markets are happy that the FOMC is willing to ease despite inflation projections being revised higher, adding: “The yield curve in the US is likely to get steeper.”