Will the US Fed, UAE Central Bank cut rates this week?

Dubai: As the US Federal Reserve prepares for its next big interest rate decision on Wednesday, borrowers and investors in the UAE are watching closely—because what happens in Washington often echoes across the Emirates.

So, will interest rates go down this week? Most analysts say not yet.

The Fed is widely expected to keep interest rates unchanged for the fifth straight time, holding its key rate in the 4.25% to 4.50% range. And that likely means the UAE Central Bank will do the same, as it typically mirrors Fed rate moves due to the dirham’s peg to the US dollar.

If you’re paying off a personal loan, mortgage, or car finance in the UAE, rate decisions like this impact how much you pay each month. A rate cut could lower your future borrowing costs—or even bring some relief to existing loan repayments if you're on a variable-rate plan.

But for now, the Fed—and by extension, the UAE—seems in wait-and-see mode.

The US economy is still adjusting to high inflation, shifting job trends, and political noise. While inflation has cooled from its 2022 highs, it's still not at the Fed’s ideal 2% target. At the same time, the US jobs market is showing early signs of strain, with slower hiring and a rise in permanent job losses.

That leaves Fed policymakers caught between two priorities: fight inflation or support job growth.

To complicate matters, President Donald Trump has increased political pressure on the Fed. He’s repeatedly demanded deep interest rate cuts and even hinted at firing Fed Chair Jerome Powell. But the Fed is an independent institution—and economists say it’s unlikely to act on political demands.

The biggest wildcard remains the labor market. If US employment figures suddenly weaken, the Fed may be forced to act quickly to prevent a broader slowdown. Two key Fed officials have already hinted they’re open to rate cuts in the coming months.

But unless there’s a dramatic shift in economic data, most expect no change this week.

Since the dirham is pegged to the dollar, the UAE Central Bank typically adjusts its base rate in lockstep with the Fed. So unless the Fed surprises with a cut, UAE interest rates will likely stay put.

That said, UAE residents with loans or mortgages should stay informed. Rate cuts may come later this year—especially if the US job market weakens or inflation drops significantly.

For now, banks are expected to hold steady—and so should your repayment rates.