• A slight increase in US jobless claims has eased fears of a sharp economic slowdown, shifting focus to the anticipated Federal Reserve interest rate cut.
• The Federal Reserve's decision is expected to stimulate economic growth by reducing credit costs, leading to increased demand, investment, and job creation.
• Global markets are reacting to these developments, with Indian shares reaching record highs and anticipation of Jerome Powell's policy speech.
• The Reserve Bank of India maintains steady interest rates, while the crypto market sees price movements in response to the anticipated US rate cut.

The recent marginal increase in the number of Americans filing fresh applications for unemployment benefits has eased fears of a sharp slowdown in the US economy. The unexpected rise in the unemployment rate in July to its highest level recorded after the pandemic, at 4.3 per cent, had sparked concerns over the health of the US economy. However, the latest figures released by the Labor Department indicate that the number of US citizens seeking unemployment benefits went up by a mere 4,000 to 232,000 for the week ended August 17.

This development has shifted the focus to the US Federal Reserve, which is expected to cut interest rates by 0.25 per cent to 0.5 per cent at its September 17-18 policy meeting. The easing of inflation has provided the central bank with the space to adopt a soft money policy to stimulate economic growth. The US central bank has maintained its benchmark overnight interest rate in the current 5.25 per cent-5.5 per cent range for over a year, a move that is seen as detrimental to growth.

Fed officials have stated that they are closely monitoring the labour market, which is a reflection of the state of the economy. Lower interest rates would result in a decrease in the cost of credit for both consumers and corporates, leading to higher levels of demand and investment, and subsequently, job creation.

Global Market Reactions and Expectations

Federal Reserve Chair Jerome Powell's policy speech on Friday is expected to provide more insights into the future course of action. Powell has previously used his Jackson Hole speech to outline broad policy initiatives and provide clues about the future of policy. The speech will be delivered at the Fed's annual conclave of global central bankers in Jackson Hole, Wyoming. The conference, titled "Reassessing the Effectiveness and Transmission of Monetary Policy", will run till Saturday.

Minutes from the July session of the monetary committee showed a vast majority of members in favour of a September cut in rates. Marketing analysts will be looking for hints about the amount and frequency of the reductions in the interest rate ahead. This development has had a ripple effect on global markets, with Indian shares logging record closing highs on Thursday, amid a global rally after softer-than-expected U.S. inflation data bolstered expectations that the Federal Reserve would cut rates sooner rather than later.

The NSE Nifty 50 settled 0.33% higher at 23,398.90, recording an all-time closing high for the third time in four sessions. The S&P BSE Sensex added 0.27% to finish at an all-time high of 76,810.90. Favourable cues from the U.S., including cooling core inflation, has boosted sentiment, powering IT stocks higher, said Sanjeev Hota, vice president and head of research at Sharekhan.

RBI's Stance and Crypto Market Reaction

In a similar vein, the Reserve Bank of India (RBI) has held the repo rate unchanged at 6.50% for a ninth straight policy meeting. The monetary policy stance was retained at 'withdrawal of accommodation' to aid the MPC's focus on bringing inflation towards the target, with four of the six members voting in its favour. With growth remaining robust, the MPC still has room to hold on to policy stance to get confirmation on the disinflationary trend, said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.

The anticipation of a rate cut by the US Federal Reserve has also stirred price moves across the crypto market. Bitcoin briefly reclaimed $61K following the news, as Open Interest surged by nearly $2 billion. "The vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting," the officials noted.

In conclusion, the marginal increase in US jobless claims has eased fears of a sharp economic slowdown, shifting the focus to the US Federal Reserve's anticipated interest rate cut in September. This development has had a ripple effect on global markets, with Indian shares logging record closing highs and Bitcoin prices surging. The Reserve Bank of India, on the other hand, has maintained a steady stance on interest rates, balancing concerns about inflation and the need to support economic growth. The global economic landscape is closely watching these developments, as they will have far-reaching implications on investment, demand, and job creation.