In a report earlier this week, Fitch Ratings reported that elevated US interest rates since 2023 are impacting the labor market and demand. The global rating agency highlighted politics as a high uncertainty area, with geopolitical risks persisting.
Signs of a US slowdown are evident in weak credit growth and slowing consumer spending. This trend is expected to continue in the second half of 2024, with real GDP growth decelerating but likely staying above recession territory.
Continued disinflation and the start of global monetary policy loosening have reduced the likelihood of major negative credit risks. The ECB, Swiss National Bank, and Bank of Canada have all cut rates in 2024, with the latter reducing rates twice by late July.
Fitch now expects a slower pace of rate cuts from the Federal Reserve in 2024 but anticipates two reductions in the second half of the year. The upcoming US election in November could be a pivotal point for policy in several areas, adding to political uncertainty.
Ongoing wars in Ukraine and between Israel and Hamas, along with simmering tensions in other hotspots, pose significant credit risks. A direct conflict in one of these hotspots could severely impact credit, Fitch warned.
In India, analysts suggest that US interest rate cuts amid weak growth projections could drive investment inflows. Foreign Portfolio Investors (FPIs) have been net buyers in India in June and July. Vaibhav Porwal, Co-founder of Dezerv, noted that India’s robust economy and fiscal discipline, coupled with potential US rate cuts, create a positive environment for fund inflows.
Milind Muchhala, Executive Director at Julius Baer India, indicated that foreign investor activity has been mixed but is influenced by global equity market performance, dollar index movements, geopolitical events, and Indian market opportunities. He also mentioned that weak US job data and a benign inflationary environment could support a rate cut in September, with further cuts possibly extending into next year.
US Federal Reserve Chair Jerome Powell hinted at a potential rate cut in September if economic conditions align with expectations. The US central bank has kept the federal funds rate unchanged at 5.25 to 5.5 percent for the eighth consecutive time.