Will US Fed, UAE Central Bank keep rates steady or surprise with a cut?

Dubai: As the US Federal Reserve prepares to announce its latest interest rate decision tonight, UAE borrowers and businesses are watching closely.

And while many are hoping for a rate cut to ease the pinch on loans, experts say the Fed is more likely to stay cautious—at least for now.

In the UAE, interest rates on mortgages, car loans, and business credit are directly linked to the US Federal Reserve’s benchmark rate.

This is because the UAE dirham is pegged to the US dollar, and the UAE Central Bank usually mirrors any rate decision made by the Fed.

Translation? Monthly loan payments will likely stay where they are for now. But what the Fed says about the next few months may shape what happens later this year.

The Fed’s current interest rate sits between 5.25% and 5.50%—the highest in over two decades. Many investors had earlier predicted that rate cuts would begin by June 2025, but sticky inflation and global uncertainty have forced a rethink.

Economists now say the earliest possible cut may be in September, provided inflation stays in check and economic growth doesn’t rebound too sharply.

“Retail spending has slowed in the US in recent months, which may push the Fed to sound a little more dovish (or pro-cut) in its commentary,” said one market watcher. “But that doesn't mean they'll act just yet.”

Several factors are making the Fed hesitant to cut rates:

Some believe US political pressure may soon play a role too. But for now, Fed Chair Jerome Powell is expected to maintain a cautious tone.

Even without a cut, UAE borrowers may still benefit in the near term if the Fed hints at when cuts are likely to start. That kind of forward guidance affects everything from mortgage planning to refinancing decisions.

For example:

For UAE businesses, particularly SMEs that rely on working capital loans or trade finance, steady rates mean stable—but still relatively high—borrowing costs. A rate cut later this year would be welcome relief, especially for sectors with tight margins or slower summer trade cycles.

The Fed’s actual decision may not change much this week—but its words will. Market analysts will dissect the Fed’s "dot plot" (a chart showing future rate expectations) and Powell’s press conference for clues.

The UAE Central Bank is expected to follow the Fed’s move closely, meaning no immediate changes for borrowers here unless there’s a surprise. But a clearer roadmap toward cuts in September or December could give residents something to look forward to.