The US Federal Reserve decided in its meeting today to keep its benchmark overnight interest rate in the 5.25-5.50% range, maintaining the highest levels since 2001. This marks the eighth time the Federal Reserve has opted to fix interest rates since the initiation of its monetary policy tightening cycle in March 2022.
Economic indicators reviewed during the meeting showed that while GDP growth moderated to 2.1% in the first half of 2024, down from 3.1% the previous year, consumer spending and investment showed resilience. “Growth of consumer spending has slowed from last year’s robust pace but remains solid. Investment in equipment and intangibles has picked up from its anemic pace last year,” Federal Reserve Chair Jerome Powell explained in a press conference following the decision.
The labour market continues to exhibit strength, though with signs of cooling. Powell pointed out that payroll job gains averaged 177,000 jobs per month in the second quarter, down from the first quarter’s figures but still indicating solid growth. He remarked, “The unemployment rate has moved up but remains low at 4.1%. Strong job creation over the past couple of years has been accompanied by an increase in the supply of workers.”
Looking forward, Powell indicated that the Fed’s decisions would remain data-dependent. “We have stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%,” he said.
CBUAE follows suit
Shortly after the Fed’s announcement, the Central Bank of the UAE (CBUAE) said it has decided to maintain the Base Rate applicable to the Overnight Deposit Facility (ODF) 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 bank said in a statement.
“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.”
Market reactions
Gold prices rose to their highest level in two weeks today after Powell opened the door to an expected interest rate cut in September.
Spot gold was steady at $2,448.38 an ounce after hitting its highest since July 18 earlier in the session. Prices were just $35 below an all-time high of $2,483.60 hit on July 17.
US gold futures rose 0.8% to $2,492.50.
As for other precious metals, silver in spot transactions fell 0.3% to $28.94 per ounce, platinum fell 0.3% to $973.65, and palladium was stable at $925.16.
