How today’s US interest rate decision will affect finances of UAE residents

Dubai: The US Federal Reserve is expected to keep interest rates unchanged when it announces its decision on Wednesday. Markets broadly see the Fed holding its key short-term rate at about 3.6%, after cutting rates three times last year.

Edward Bell, Acting Chief Economist and Group Head of Research at Emirates NBD, says a pause was always the most likely outcome. “We expect no change in policy at this meeting and markets are assigning virtually no chance of a rate cut at the January FOMC.” Bell says the Fed is staying on hold because the US economy is sending mixed signals.

“Total [US] nonfarm payrolls expanded by 50,000 in December 2025… At the same time [US] inflation has remained stubborn and disinflation has slowed.” US consumer inflation stood at 2.7% year-on-year in November.

The Fed’s decision matters in the UAE because the dirham is pegged to the US dollar. That peg means UAE interest rates move closely in line with the Fed.

Bell says this connection is structural.“Central banks in the GCC will follow the Fed on policy this year.” That link feeds into EIBOR, the benchmark used to price most UAE mortgages, personal loans, and corporate borrowing. When the Fed does not cut, local borrowing costs usually stay where they are, and any relief for households and businesses is delayed.

With no change from the Fed, mortgage rates, car loans, and most variable-rate products in the UAE are unlikely to move in the near term. Monthly repayments should remain broadly stable, while new borrowers will continue to face higher costs than in the years before global inflation surged.

For savers, the same environment supports stronger returns on deposits. Banks continue to offer relatively attractive rates on fixed deposits and savings accounts, reflecting the higher global interest-rate backdrop.

Local financial conditions remain steady. Emirates NBD says strong non-oil growth has driven a sharp rise in deposits, leading to “large increases in surplus liquidity” in the UAE banking system.

The bank also notes that UAE interbank rates are trading slightly below comparable US dollar rates. That has helped keep funding conditions stable and limited sudden swings in borrowing costs.

The Fed cut rates three times last year to support the economy after hiring slowed sharply following US tariff moves in the spring. Since then, the unemployment rate has edged lower, and weekly jobless claims have stayed historically low, pointing to a labour market that may be stabilising.

At the same time, inflation has remained elevated. The Fed’s preferred measure showed prices rising 2.8% in November from a year earlier, up from 2.6% the year before.

After the Fed’s December meeting, Chair Jerome Powell said policymakers were “well positioned to wait to see how the economy evolves” before making further moves. Economists say that unless inflation cools more clearly or job losses accelerate, the Fed is unlikely to rush into fresh cuts.

This week’s meeting follows two weeks of intense political and legal scrutiny of the Fed. Earlier this month, the US Justice Department subpoenaed the central bank as part of a criminal investigation into Powell’s testimony about a $2.5 billion renovation of the Fed’s headquarters.

Powell said on January 11 the subpoenas were “pretexts” to punish the Fed for not cutting rates as sharply as President Donald Trump wants. He is expected to use this week’s meeting to stress that interest-rate decisions are driven by economic data, not politics.

Claudia Sahm, a former Fed economist and now chief economist at New Century Advisors, said Powell will be under pressure to underline that message. “Everything we’re doing here … is all about the economics. We didn’t think about the politics,” she said.

Michael Gapen, chief US economist at Morgan Stanley and a former Fed staffer, said the policy process itself is unlikely to change. “The meetings have a regular flow to them. There are presentations that are made, there are discussions that have to be had,” he said. “Some of these other broader-based attacks on the Fed don’t really come up.”

The scrutiny has also extended to the wider Fed leadership. The US Supreme Court recently considered whether President Trump could fire Fed governor Lisa Cook over allegations she denies. No president has ever fired a Fed governor in the central bank’s 112-year history.

Bell expects that continued cooling in the US labour market could open the door to cuts later this year.“We expect that the considerable cooling in labour market activity will push the Fed to cut rates this year.” Markets are currently pricing in roughly two quarter-point cuts over the course of 2026.

Economists say cuts are more likely if inflation drifts lower and hiring slows again in the coming months. Even then, Bell does not expect dramatic changes for the region. “Between 50–75bps of easing is unlikely to materially impact our outlook for GCC growth.”

For UAE residents, today’s decision keeps borrowing costs steady for now. Any relief on mortgages and other loans looks more likely later in the year, and in gradual steps rather than sudden drops.