The US Federal Reserve announced its third consecutive interest rate cut of 2024 on Wednesday, reducing its benchmark rate by 0.25 percentage points amid cooling inflation.
“Economic activity has continued to expand at a solid pace” with an unemployment rate that “remains low” and inflation that “remains somewhat elevated,” the central bank’s rate-setting Federal Open Market Committee said in its latest policy statement.
With the latest announcement, the target range for the federal funds rate stands at 4.25 percent to 4.5 percent.
UAE Central Bank cuts rates
Following the Fed’s announcement, the Central Bank of the UAE (CBUAE) decided to cut the base rate applicable to the overnight deposit facility (ODF) by 25 basis points, from 4.65 percent to 4.40 percent, effective from Thursday, December 19.
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 Rrate 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.
Fewer hikes in 2025
The Federal Reserve also signaled that it expects to reduce rates more slowly next year than it previously envisioned, mostly because of still-elevated inflation.
The Fed’s 19 policymakers projected that they will cut their benchmark rate by a quarter-point just twice in 2025, down from their estimate in September of four rate cuts.
The central bank’s expectation of just two rate cuts in 2025 rattled Wall Street, sending stock prices plummeting in the worst day for the market in four months. The Dow Jones Industrial Average closed down more than 1,100 points, roughly 2.5 percent. The Nasdaq composite was hit worse, sinking about 3.5 percent on Wednesday. Higher interest rates can slow business expansion.
