Nifty 50 and Sensex are both down about 1.15% in early trade on Thursday, extending their losses from a pretty bearish session already seen yesterday.

If you are looking for a cause for why your portfolio is down in the slumber today — look at the U.S. Federal Reserve.

The Fed set up some expectations about the rate cutes the United States can expect for 2025 and the market set off in panic.

The tech-heavy Nasdaq 100 was down a 3.6% and S&P 500 — the flagship U.S. index — crashed 2.95%, so the Indian markets are so far behaving, relatively calmer.

What Did The Fed Do? The Fed Chair Jerome Powell announced cutting the overnight borrowing rates — one of its more important rates — to a target range of 4.25% to 4.5%, levels last since in December 2022.

This is widely a bullish event for the market — but one that is also being sidelined, because this was well expected and already priced in.

Traders and investors were looking less at what Fed would do, which they kind of already knew and anticipated, but more at what it would say.

So, what did the Fed say? The Fed said it only expects to cut the rate twice in 2025, compared to the four times expectation that was set in September.

Why Fed keeping this rate higher bad for share market and my portfolio? Fed keeping this rate higher means borrowing costs remain high, which in turn can mean consumers want to spend less and corporate investments could be fewer.

As interest rates remain higher for longer, equity valuations usually come under pressure.

Investors often use discounted cash flow models that factor in interest rates; if rates are higher, future cash flows are discounted more heavily, leading to lower valuations for stocks.

Well, then why does the Fed raise interest rate if it so bad for the stock market? Fed’s interests here are in maintaining the overall health of the U.S. economy.

If the U.S. central bank believes inflation is above its usual target of 2%, it would raise interest rates in attempt to lower it.

Okay, so why is US Fed’s actions impacting me in India? The U.S. dollar is the reserve currency of the world and the U.S. Fed’s actions end up having an overbearing impact on international trade.

It doesn’t help further that central banks around the world look at the U.S. Fed for cues on what actions to take themselves.

Beside the overwhelming presence of the U.S. dollar and the U.S. market, the secondary indicative role also doesn’t help.