UAE stays resilient amid expected fed rate cut
Date
7/23/2024 8:19:27 AM
(MENAFN) As the United States federal Reserve approaches its next meeting, expectations are leaning towards maintaining the current benchmark interest rate. However, recent statements from Fed officials hint at a potential reduction in the Fed Funds rate in the coming months due to slowing inflation and a softening labor market. The upcoming meeting in September may see a 25-basis point cut, with at least one more reduction of the same magnitude anticipated before year-end, aligning with the outlook of Emirates NBD. The Fed Funds rate, which has been at a 5.5 percent high for about ten months following a pause in the aggressive rate-hiking cycle in September 2023, remains the highest since the early 2000s.
Despite the significant tightening of monetary policy since 2022, the US economy has shown remarkable resilience, managing to slow inflation towards the 2 percent target without triggering a recession—a scenario many analysts had predicted. This economic fortitude has surprised markets and analysts alike, showcasing the adaptability of the US economy in the face of rapid policy shifts. Meanwhile, the Gulf Cooperation Council (GCC) economies, particularly the UAE, have also demonstrated robustness against the backdrop of rising interest rates. The region recorded a commendable average non-oil GDP growth of 4.2 percent in 2023. Although this is a decline from the 5.5 percent growth seen in 2022, it still represents a significant improvement over the years leading up to the Covid-19 pandemic.
The United Aarab Emirate's ability to sustain strong non-oil growth despite higher interest rates underscores the resilience of its economy. The continued economic expansion, even in a challenging global financial environment, highlights the strength and adaptability of the United Arab Emirates and the broader GCC region. As the Fed potentially shifts towards a more accommodative monetary stance, these economies may find additional support for their growth trajectories in the near future.
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