The US Federal Reserve left its key interest rate range unchanged Wednesday at 5.25%-5.5%., marking a decision to keep rates steady at a 22-year high.
The Fed’s forward guidance indicated an expected trajectory of three quarter-point rate reductions by the close of 2024, potentially bringing the range from 4.5% to 4.75%.
Recent indicators suggest that growth of economic activity has slowed from its strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.
Although the labour market remains tight, improved supply and demand equilibrium has surfaced. However, nominal wage growth is slowing, and inflation continues hovering above the desired 2% threshold while gradually softening.
“The labour force participation rate has increased since last year, particularly for individuals aged 25 to 54 years, and immigration has returned to pre-pandemic levels,” the Fed said in a statement. “Nominal wage growth appears to be easing, and job vacancies have declined.”
Projections from the Federal Open Market Committee (FOMC) suggest an anticipated decline in inflation from 2.8% this year to 2% by 2026.
“The Fed pivot party got a big boost with the FOMC adding another rate cut to next year’s dot plot and Chair Powell’s comment that they may be near peak rates,” said Charu Chanana, Market Strategist, Saxo Bank. “However, the US dollar slump may get a reality check today on US exceptionalism, particularly if the ECB proves even more dovish than the Fed.”
According to forecasts, the federal funds rate is expected to decline to 4.6% by the conclusion of 2024 and further to 2.9% by 2026, maintaining a position above the longer-term rate.
CBUAE maintains Base Rate at 5.40%
Following the US Federal Reserve’s announcement to keep the Interest on Reserve Balances (IORB) unchanged, The Central Bank of the UAE (CBUAE) has decided to maintain the Base Rate applicable to the Overnight Deposit Facility (ODF) without change at 5.40%.
The CBUAE has also decided to maintain the interest rate applicable to borrowing short-term liquidity from the CBUAE at 50 basis points above the Base Rate for all standing credit facilities.
“The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE,” CBUAE said.
