The Fed decision last night does not change our view on the RBI October policy outcome, and we continue to expect the central bank to maintain status quo both on rates and its stance. The USD/INR pair appreciated on Tuesday at 83.76 on expectations of a 50bps rate cut by the Fed, but we see the pair giving up some of its recent gains (as the market digests the Fed outcome and with the dollar strengthening) and see a range of 83.70-83.80 holding in the very near-term. 

• The US Fed delivered an outsize rate cut of 50bps yesterday bringing the policy rate down to 4.75-5%. We read this decision as a frontloading of the rate cut cycle by the Fed in order to prevent further sharp weakness in the US labour market and engineer the so called “soft landing” in the economy. While the Fed has started strong on the rate cut cycle, Fed Chair Powell clarified that this does not set the pace for further 50bps rate cuts in the upcoming meetings. The Fed remains data dependent and its median rate projections for now suggest cumulative 50bps rate cut in 2024 (for the Nov & Dec policy combined), 100 bps in 2025 and 50bps in 2026 --- with the terminal rate settling at 2.9%. 
• The market saw volatile moves post the policy announcement with the US dollar initially edging down before rebounding as the market perhaps took Powell’s comments as a reflection of “pre-emptive” action to prevent a recession and moderating fears that the Fed may be falling behind the curve. The DXY (dollar index against a basket of currencies) was last trading above 101 levels (pre-policy the index was sub-101). While near-term volatility might continue in the DXY as the market makes sense of the Fed move, we continue to expect the US dollar to moderate over the medium-term. 
• Other major currencies like the EUR & GBP were down given dollar strength. But what was surprising for us was the extent of depreciation in the JPY against the USD (trading close to 143.11 at the time of writing) despite the reducing interest rate differentials with the US. The BoJ meeting tomorrow could further add to the volatility in the pair – for now we do not expect the central bank to deliver any rate action, but their commentary could nudge market positioning in either direction and the probability of further volatile moves in the JPY this week remains high.
• Fed policy – details: The decision was not unanimous, as Fed Governor Michelle Bowman preferred a quarter-point cut. In the press conference, Chair Jerome Powell referred to the rate cut as a “recalibration” of monetary policy, stressing that future decisions will be made on a meeting-by-meeting basis.