By Ajitabh Bharti, Executive Director and Co-founder at CapitalXB
The Fed’s 25bp hike to 3.75–4.00% — the first since 2023 — fits a pattern across major central banks this year: Japan pushed its policy rate to 1% in June, and the US has now followed. The context matters: this isn’t tightening into an overheating economy. Growth in both the US and Japan is holding up reasonably well, and the proximate trigger is a supply-side energy shock feeding inflation, not runaway demand. That distinction argues against reading this as the start of an aggressive tightening cycle — more a recalibration to defend inflation credibility while growth stays intact.
Still, the risk to watch is inflation persistence, not growth. US equities should tolerate a “hike from strength” story better than a recession-driven one, though valuation-sensitive sectors face higher discount rates. US bond yields likely see near-term upward pressure, especially at the front end.
For India, transmission is straightforward: with global rates rising, the RBI has less room to ease, and Indian bond yields will likely drift up in sympathy even without a domestic move. Equities should hold up if the growth narrative stays intact, but margin-sensitive sectors are exposed.
MSMEs are the most vulnerable link — working-capital costs rise directly with rates, and they lack the pricing power or capital-market access larger firms have to absorb the squeeze.