Fed hike impact: What 25 bps rate increase means for market & FII flows

US Fed Rate Hike Impact: In line with expectations, the Fed raised rates by 25 bps, with policy signalling that this cycle will continue.

In line with expectations, the Fed raised rates by 25 bps, with policy signalling that this cycle will continue.

After a span of nearly three years, the needle on interest rate hikes has finally moved in the US as Kevin Warsh delivered his first increase since assuming the role of Fed chief amid persistent inflation worries.

Two other elements of the decision tilted the outcome hawkish. First, the vote was unanimous – a signal that bolsters institutional independence and the new Chair's leadership, said Emkay Global. Secondly, there was broad support for further hikes: the median dots project one more 25 bps hike this year.

Fed’s renewed focus on taming inflation drove front-end US yields and the dollar higher, while US shares retreated by up to 1 per cent. However, most Asian markets, including India, gained. Generally, a US Fed rate hike is considered negative for emerging markets as it raises the risk of foreign outflows.

However, this time around the reaction has been muted, largely as the Fed hike was priced in. The BSE barometer Sensex was trading nearly 0.40 per cent or 285 points higher at 74,620 levels around 12.30 PM following a range-bound move in early trade.