Jerome Powell
US Federal Reserve Chairman Jerome Powell takes questions from reporters during a press conference after the release of the Fed policy decision to leave interest rates unchanged, at the Federal Reserve in Washington, US, on November 1, 2023. Image Credit: AP

The US Federal Reserve kept its key monetary policy rate steady at a 22-year-high on Wednesday – the fourth consecutive time it has hit the pause button this year, while flagging that it doesn't see cuts until it is more confident inflation in the country is nearing 2 per cent.

The Federal Open Market Committee, which was earlier poised to keep rates unchanged in a range of 5.25 per cent to 5.5 per cent at its two-day policy meeting ending Wednesday - a 22-year high first reached in July, also flagged that the economic outlook is “uncertain”, while removing reference to possible additional rate hikes.

Traders have currently been seeing a roughly 40 per cent chance the central bank will lower rates for the first time in March, nearly eight months after the last rate hike, but most Fed officials have said it's too soon to speculate on such a pivot.

UAE holds interest rates steady

Shortly after the Fed's announcement, the UAE Central Bank said it's keeping its interest rate unchanged.

"The Central Bank of the UAE (CBUAE) has decided to maintain the Base Rate applicable to the Overnight Deposit Facility (ODF) without change at 5.40 per cent,” it said in a statement.

"This decision was taken following the US Federal Reserve’s announcement on January 31 to keep the interest on Reserve Balances (IORB) unchanged."

The CBUAE has also decided to maintain the interest rate applicable to borrowing short-term liquidity from the CBUAE at 50 basis points above the Base Rate for all standing credit facilities.

The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE.

Rate cuts after US inflation cools

The US Fed has a dual mandate to keep both inflation and the unemployment rate low, and has been heavily focused on bringing high inflation back down towards its long-term target of two percent.

The Fed, on Wednesday, added that its rate-setting committee is unlikely to start cutting interest rates "until it has gained greater confidence that inflation is moving sustainably toward 2 percent."

The Fed's favored inflation measure, which strips out volatile food and energy prices, has now fallen below an annual rate of 3 per cent, while economic growth remained robust at 2.5 percent in 2023 and unemployment stayed close to historic lows.

- with inputs from Agencies