The Federal Reserves slashed interest rates by 25-basis-points on September 17, in line with broader market expectations. Additionally, the central bank has penciled in two more rate cuts for the year, although the decision was not unanimous. Nine officials were in favor of two or less interest rate cuts, while ten showcased their support for three reductions. Unsurprisingly, Stephen Miran, who served in the capacity of Trump’s economic advisor until his confirmation to the central bank board this week, was a strong advocate for a larger 50-basis-point cut, thereby echoing Trump’s repeated calls for monetary easing.
Some of the noteworthy changes in the FOMC statement include language acknowledging that job gains had slowed, the unemployment rate had edged up, inflation had moved up, downside risks to employment had risen, and that the rate cut was justified due to a shift in the balance of risks. Additionally, the median forecast indicates a likelihood of two more interest rate cuts this year as opposed to just one more projected earlier.
The DJIA soared to a new all-time high near $46,135 following the interest rate announcement, while the Small Cap 2000 Index gained 1.8% to $2,432. A close above $2,442.74 would place it on track for its first record close since November 8, 2021. Additionally, real estate stocks in the U.S. gained 1% immediately as opposed to the 0.3% decline in the S&P 500. Moreover, bonds erased gains as Powell struck a slightly hawkish tone in the Q&A segment. The Summary of Economic Projections (SEP) reflected a more hawkish stance for 2026, with stronger growth, higher inflation, and a lower unemployment rate, even though the dot plot indicated further easing during that year.
In his press conference, Chairman Powell acknowledged that a slowdown in consumer spending was weighing on economic growth. The U.S. economy grew at 1.5% in H1’2025, down from 2.5% in H1’2024. The median forecast suggests GDP is likely to rise 1.6% this year. When questioned about whether Stephen Miran’s appointment to the Fed board would compromise the central bank’s independence, Powell brushed the question off with a generic response reiterating the Fed’s commitment to maintaining its independence. Powell also stated that the inflationary impact of tariffs could likely be short-lived, although policymakers do anticipate inflation to run a bit hotter than expected in 2026.
Given the currency peg between the Dirham and the U.S. Dollar, the Central Bank of the UAE (CBUAE) is also expected to slash interest rates by a corresponding magnitude. This move will lower borrowing costs in the UAE, thereby driving lending activity, credit growth, and business investment in the region. While banks might earn lower NIMs due to a decline in interest rates, its impact could be offset by heightened lending activity, particularly in the SME sector. Both businesses and individuals would benefit from more attractive loan rates, which could help UAE residents with mortgages or personal loans tied to variable rates. This could also ease debt servicing burdens and improve asset quality. Furthermore, a reduction in mortgage rates could benefit property investors, while developers could access more favorable funding conditions, potentially speeding up project launches.
Although rate cuts generally reduce returns from traditional investments like fixed deposits, they may encourage gains in the stock market, especially for growth stocks and dividend-paying companies. Dovish expectations have put additional pressure on the U.S. dollar, pushing it below 97. A weaker dollar indirectly supports the UAE’s tourism sector by making travel more affordable for visitors from non-dollar regions. However, businesses in the UAE that rely on imports could face increased costs, as a softer dollar typically raises import prices.
