Federal Reserve holds interest rates steady, Gulf banks follow suit

Powell: Long way to go on inflation
Federal Reserve holds interest rates steady, Gulf banks follow suit
The Federal Reserve

For the fourth-straight meeting, the U.S. Federal Reserve (Fed) voted to maintain interest rates while acknowledging that the risks to achieving its inflation and employment targets are moving towards a better balance.

Following the meeting, Fed Chair Jerome Powell stated that there has been no definitive improvement and inflation has not been fully controlled yet, indicating that there is still progress to be made. Powell voiced his disagreement with the expectation of a U.S. interest rate reduction by March.

In its statement, the Fed announced that they would keep the key lending interest rate steady at a 23-year high, ranging between 5.25 percent and 5.50 percent. The Federal Open Market Committee (FOMC) expressed hesitation to lower rates until they are more confident that inflation is consistently moving towards their target of 2 percent.

The Fed’s statement highlighted positive signs of economic expansion and moderate job gains, although inflation has remained high despite a decline over the past year. The central inflation gauge in the U.S. fell below 3.0 percent annually, while economic growth stayed solid at 2.5 percent in 2023, and unemployment remained at historically low levels.

Before the meeting’s conclusion, it was widely expected that the Fed would maintain benchmark interest rates within their current range. Market participants have anticipated a cumulative reduction of 150 basis points by the next December meeting, an increase from the 130 basis points predicted two weeks prior.

The U.S. economy experienced significant growth in the fourth quarter of 2023, with a seasonally adjusted annual rate of 3.3 percent according to GDP data. Throughout the year, the economy grew at an annual rate of 2.5 percent, surpassing initial Wall Street forecasts of minimal gains.

Read more: Federal Reserve maintains unchanged interest rate, foresees three cuts in 2024

Gulf banks follow suit

In line with the Federal Reserve’s actions, central banks in the Gulf region have also chosen to keep their interest rates unchanged.

The Central Bank of the United Arab Emirates (CBUAE) maintained the base rate applicable to the Overnight Deposit Facility (ODF) at 5.40 percent.

Similarly, the Qatar Central Bank (QCB) made the decision to maintain stability in deposit, lending, and repo interest rates at 5.75 percent, 6.25 percent, and 6 percent, respectively.

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