Fed rate hike impact | Sensex: How will Sensex react to Fed rate hike? Here’s the track record – Blue Barrows

With the equity markets having already discounted a 75 basis point rate hike by the US Federal Reserve tonight, the focus may turn more on Jerome Powell’s commentary around the trajectory of future rate hikes rather than the quantum of the hike this time.

If 2022’s track record is considered, then predicting tomorrow’s movement on Dalal Street is not as simple as it sounds even if you know the outcome of the Fed meeting.

On July 28, a day after the last meeting of the Federal Open Market Committee (FOMC) in which Powell had increased the target rate by 75 bps to a range of 2.25-2.5 per cent, Sensex had ended with a gain of over 1,000 points or 1.87 per cent. Not only was it the biggest increase since 1994, but the Fed had also continued its policy of unwinding its record balance sheet.

If Powell opts for a 75 basis point hike tonight, the quantum of rate hike would be the same for the third time in a row after successive 75 bps hikes in its May and June meetings.

After the June 14 meet, Sensex had lost over 1,045 points as panic gripped Dalal Street after the jumbo rate hike.

The May 4 hike of 50 bps to fight inflation was greeted neither by bulls nor bears as the Sensex ended flat with a gain of just 33 points.

In March this year, when the Fed had approved its first interest rate hike in more than 3 years, Sensex had ended with a gain of 1,047 points.

Fed’s first meeting of this calendar year in January 2022 in which Powell had hinted at hiking rates in its next meeting had left the Sensex down over 580 points.

On the other hand, Wall Street has rallied each of the four times that the Fed hiked rates this year. On March 16, May 4, June 15 and July 27, the S&P 500 rallied 2.2 per cent, 3 per cent, 1.5 per cent and 2.6 per cent, respectively, on the day of Fed’s rate hike announcement.

“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. At the most, the US Fed rate hike could impact Indian market sentiments only for a day and not beyond,” Sunil Damania, Chief Investment Officer, MarketsMojo, said.

After hotter-than-expected US inflation data stoked fears of a super-sized 100 bps rate hike, only two of 96 economists in a Bloomberg survey now predict a full-point move.

Amid support from FIIs, Nifty has gained over 13 per cent this quarter.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)