The US Federal Reserve kept its key monetary policy rate steady at a 22-year-high on Wednesday – the fifth consecutive time it has hit the pause button, while signaling it is still leaning towards eventual reductions in borrowing costs. However, it put a red flag on recent disappointing inflation readings in the top economy.
"The Federal Open Market Committee (FOMC) does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2 per cent,” the US Fed repeated in a unanimously-approved statement that still indicated the next move on rates will be down.
The FOMC 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.
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 today 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.)
US rate cut timings still in doubt
The latest statement continues to leave the timing of any rate cut in doubt, analysts opine, and Fed officials made emphatic their concern that the first months of 2024 have done little to build the confidence they seek in falling inflation.
“In recent months, there has been a lack of further progress towards the Committee’s 2% inflation objective,” the Fed said in the statement. Where the prior statement in March suggested an improving dynamic, saying that the risks to the economy “are moving into better balance,” the new statement hinted that the process may have stalled with its assessment that risks “have moved toward better balance over the past year.”
- with inputs from Reuters
