US to keep interest rates unchanged at Fed chair Powell’s final meeting, UAE to follow
US rate pause likely to keep UAE borrowing conditions steady under dollar peg
Dubai: The US Federal Reserve is expected to keep interest rates unchanged at its policy meeting this week, a move that will directly influence the UAE given the dirham’s peg to the US dollar.
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The Federal Open Market Committee begins its two-day meeting on Tuesday, with policymakers seen holding rates in a 3.50% to 3.75% range. That would mark a third consecutive pause after earlier rate cuts, as officials assess inflation trends and global developments.
For the UAE, the transmission is straightforward. Policy moves in Washington are typically mirrored by the central bank, keeping local lending conditions broadly aligned with the US.
Iran tensions in focus
The meeting comes against a backdrop of elevated energy prices following disruptions in the Strait of Hormuz, a key route for global oil flows. For the Gulf, this dynamic supports revenues but also feeds into global inflation trends that the Fed is monitoring.
US inflation rose to 3.3% in March, its highest level in nearly two years, driven largely by energy costs. “We still have a very high level of uncertainty on what's happening in the Middle East,” said Kenneth Kim, senior economist at KPMG.
Policymakers are expected to keep their options open on future rate moves. While inflation risks remain, the labour market has held steady, allowing the Fed to take a measured approach.
“This may mean maintaining the policy rate at the current target range if the risks to inflation outweigh those to the labor market,” Fed Governor Christopher Waller said. Markets are now looking for clearer signals later in the year on when easing could begin.
Powell’s final meeting
This week’s gathering could be the last chaired by Jerome Powell, whose term ends on May 15. His remarks after the meeting are expected to offer guidance on the policy outlook and his future role at the central bank.
Attention is also turning to Kevin Warsh, President Donald Trump’s nominee to lead the Fed. His confirmation process appears to be gaining momentum after earlier delays.
“I am prepared to move on with the confirmation of Mr. Warsh. I think he's going to be a great Fed chair,” Senator Thom Tillis said after a Justice Department investigation was dropped. Warsh has said he would act as “an independent actor” if confirmed.
Economists say the Fed is navigating a complex mix of inflation pressures and global risks. “We're at a critical juncture for the Fed,” said Gregory Daco, chief economist at EY-Parthenon.
For the UAE, the near-term picture points to stability in borrowing conditions as US rates hold. The timing of any future rate cuts will depend on how inflation evolves, particularly in relation to energy markets and geopolitical developments.
