The US Federal Reserve cut its benchmark federal funds rate by 25 basis points to a target range of 4.00-4.25% at its May 2026 FOMC meeting, marking the third rate cut since the current easing cycle began. Fed Chair Jerome Powell said the decision reflected continued progress on inflation which has fallen to 2.6%, and acknowledged that the labour market had moderated from its previously overheated state.
The dot plot projections indicated that a majority of FOMC members now expect two more 25 basis point cuts by the end of 2026, raising total easing in the cycle to 125 basis points. However, Powell cautioned that the pace of future cuts would remain data-dependent and that the Fed was not pre-committing to any particular path given ongoing uncertainties around trade policy and global growth.
Global financial markets responded positively to the decision, with US equities rising and emerging market currencies strengthening against the dollar. The Indian rupee gained 38 paise to trade at 82.42 per dollar, while the yield on the 10-year US Treasury fell to 4.12%. Analysts expect the Fed to continue cutting in September and December 2026, providing a supportive backdrop for risk assets globally.
