FOMC meeting: Is 100 bps hike on the cards? Experts decode expectations, impact on Indian market

FOMC meeting impact on stock market: Ahead of the FOMC meeting scheduled for later in the night (Indian time) on Tuesday, the domestic equity benchmarks have been trading with strength, gaining by more than 1.5% each. The Nifty50 jumped 284.65 points or (1.62%) to trade past 17,900, while the Sensex rose higher by 920.36 points or (1.56%) to trade above 60,000 in Tuesday's intraday trade. The market was aided by sectoral indices as all indices sat in the green, while Midcap jumped two per cent and Smallcap index rose 1.5% in the broader market.  

As the two-day FOMC meeting is all set to kick-start today, the market experts and economists feel a 75-basis point (bps) is on the cards. However, there is also a view that US Federal Reserve led by Chair Jerome Powell can also go for a steep hike of 100 bps in order to contain spiralling inflation.  

Meanwhile, the Monetary Policy announcements are likely to be done around 11:30 pm IST.       

They feel, 75-bps hike has already been factored in by the domestic market, but a little higher hike than this range can surprise the market in the short-term.  

Sunil Damania, Chief Investment Officer, MarketsMojo, says that It’s certain that the US Fed will hike interest rates, but the debate is how much.  

We sense that the Fed will increase it by 75bps even though there is a low possibility that the hike could be as high as 100 bps, said Damania 

"If the Fed hikes the rate by 75 bps, we don’t expect a significant negative impact on the Indian market. In fact, after every 75 bps rate hike (as seen in June and July 2022), the Indian market rose. We expect a similar pattern to play out this time as well," he said.  

At the most, the US Fed rate hike could impact Indian market sentiments only for a day and not beyond, he added.  

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said the Indian market can see a big correction if the Fed decides to hike rate by 100 bps. ""Since globally markets are focused on Fedspeak on the 21st, major breaks from the present levels are unlikely for two days," he added.  

It is very likely that the U S Fed will deliver a 75bps rate hike, says Manish Jeloka, Co-head of Products & Solutions, Sanctum Wealth.

"Moreover, it is widely expected that the US fed will maintain its hawkish stance and signal that it will maintain higher rates till the time they do not see a meaningful decline in inflation rates. While Indian equities is expected to keep outperforming global markets, we expect that there will be an increase in volatility given a hawkish stance by the US Fed," added Jeloka. 

About FOMC

The FOMC holds eight regularly scheduled meetings during the year related policies, as per federalreserve.gov. "The minutes of regularly scheduled meetings are released three weeks after the date of the policy decision. Committee membership changes at the first regularly scheduled meeting of the year," said the website 

The Federal Reserve controls the three tools of monetary policy--open market operations, the discount rate, and reserve requirements. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market operations.