Will US, UAE cut rates drastically this year to ease strain on borrowers?

Dubai: As the US economy shows signs of slowing, expectations for interest rate cuts are rising — and UAE borrowers and businesses are likely to feel the impact.

Mounting evidence of a cooling US economy has intensified expectations that the Federal Reserve will begin cutting interest rates before the end of the year. With the UAE dirham pegged to the US dollar, any shift in US monetary policy will have a direct impact on interest rates in the Emirates.

Global markets are currently pricing in up to three rate cuts by the Fed in its remaining meetings this year. A 50 basis-point reduction as early as September is now on the table, after weaker-than-expected US jobs data and a sharp slowdown in the services sector for July.

The shift in expectations comes alongside growing internal support within the Fed for looser policy. San Francisco Fed President Mary Daly has publicly indicated that a pivot to cuts may be nearing, while two Fed governors dissented in July, voting in favour of lowering rates.

With pressure also coming from President Donald Trump — who has called for more aggressive cuts — attention is turning to the Fed’s next moves. Trump is expected to name a replacement for outgoing Fed Governor Adriana Kugler, possibly shifting the central bank’s stance even further toward easing.

What it means for the UAE

For UAE residents and investors, the ripple effects of any Fed rate cuts are almost immediate. The Central Bank of the UAE typically mirrors US rate decisions due to the currency peg, making local borrowing cheaper or more expensive in lockstep with Washington.

If cuts materialise, mortgage holders, business borrowers, and consumers with personal loans in the UAE could see relief in the form of lower monthly repayments. At the same time, investors relying on fixed-income returns may need to reassess portfolios, as lower rates tend to weigh on deposit yields and bond performance.

“This is a crucial moment for UAE borrowers and investors,” said a financial adviser based in Abu Dhabi. “If the Fed begins cutting rates, we can expect the UAE central bank to follow — which could unlock new opportunities across real estate, business lending, and investment planning.”

The timing, however, remains uncertain. Fed officials have made clear that more than one soft data point will be needed to justify policy easing. They are expected to closely watch inflation and employment trends before confirming a pivot.

For now, all eyes are on upcoming US economic data and the September Fed meeting. But for UAE markets, the signals are already clear: a global move toward monetary easing could soon be underway — and the Emirates won’t be far behind.