Jerome Powell signals Fed rate cuts — impact on Indian rupee and bonds explained
US Fed signals policy easing; rupee may rise, bond yields could slip as dollar softens.
INR vs USD: Powell’s rate cut hint may boost rupee, soften bond yields on Monday
Federal Reserve Chair Jerome Powell’s comments at the Jackson Hole symposium have sparked expectations of a September rate cut, a move that could weaken the US dollar (USD) and give the Indian rupee (INR) and bond markets a lift on Monday.
Powell hints at policy shift
In his eighth and final speech as Fed Chair at Jackson Hole, Powell signaled the central bank is prepared to adjust its restrictive policy stance as the US labor market softens.
“Our policy rate is now 100 basis points closer to neutral than it was a year ago… the shifting balance of risks may warrant adjusting our policy stance,” Powell said.
While inflation remains a concern — especially with tariffs expected to push prices higher — Powell emphasized the jobs slowdown is more pronounced than previously thought, though “not alarming.”
Market reaction: Yields fall, equities rise
Following Powell’s remarks:
♦ US 10-year Treasury yields dropped 1.7%
♦ Dollar index fell nearly 1%
♦ Nasdaq, Dow Jones, and S&P 500 jumped up to 2%, reflecting investor confidence in a near-term rate cut
Impact on Indian rupee and bond markets
A softer US dollar typically supports emerging market currencies, including the INR. Experts believe Indian government bond yields may slip as foreign investors position for easier global liquidity.
♦ Jeffrey Roach, Chief Economist, LPL Financial:
“The macro outlook should convince the Fed to cut rates in September. This will tamp down US bond yields and bolster markets in the near term.”
♦ Vishal Goenka, Co-Founder, IndiaBonds.com:
“Powell’s rate cut signals may cushion recent pressure on the rupee and give RBI room to ease policy amid slowing credit growth.”
♦ Ajay Kumar Yadav, CEO, Wise Finserv:
“A softer Fed usually weakens the dollar — good news for the rupee. But India’s dollar demand from importers and tariff worries may cap gains. Expect volatility near ₹87.50 rather than a straight rally.”
Yadav added that foreign investors remain net buyers of Indian bonds, creating opportunities in long-duration paper as yields trend lower.
“For investors, a barbell strategy — mixing short- and long-term bonds — captures both stability and upside,” he advised.
Big picture: Relief, but with caution
Powell’s dovish tone offers short-term relief for the rupee and bonds, yet tariff-driven inflation risks mean the Fed may act cautiously. Any rate cut in September (17th meeting) could pave the way for the Reserve Bank of India (RBI) to follow suit, but structural dollar demand may limit INR’s upward momentum.
