The US Federal Reserve decided to keep its key interest rate unchanged in the 3.5-3.75% range during its January 2026 meeting, marking the first pause after three consecutive 25-basis-point cuts in late 2025. This cautious stance reflects ongoing concerns over “somewhat elevated” inflation, despite solid economic expansion and signs of labor market stabilization. Chair Jerome Powell emphasized a data-dependent approach, noting the economy enters 2026 on firm footing with balanced risks to employment and price stability. The decision came amid political tensions, including President Trump’s criticisms and questions over Fed independence.

For Indian markets, the hold delays the expected boost from cheaper global liquidity that typically follows US rate cuts. A steady Fed could provide short-term support to the US dollar, potentially pressuring the rupee near its lows and capping rallies in equities. Early indicators showed GIFT Nifty trading with a slight negative bias, pointing to a flat-to-lower open on Thursday. Asian peers like KOSPI, ASX 200, and Hang Seng faced sharper declines of up to 0.70%, reflecting broader caution.

The absence of further easing limits foreign investor inflows into emerging markets seeking higher yields. However, domestic factors—such as upcoming Economic Survey insights and corporate earnings—will likely dominate Nifty and Sensex movements more than the Fed’s pause. Analysts note muted direct impact, with focus shifting to RBI policy alignment and global trade dynamics.

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Worries over Fed independence and potential policy shifts have fueled a “debasement trade,” pushing gold prices above $5,500 per ounce as investors flock to safe-haven assets. This trend underscores persistent inflation fears despite the Fed’s steady rates.

Overall, the decision signals a measured outlook for 2026, with markets pricing in limited further cuts—possibly one or two—later in the year. Indian investors should monitor rupee stability, FII flows, and domestic cues amid this global backdrop.

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