The Fed delivered a unanimous quarter-point hike on Wednesday, lifting rates to 3.75–4.00%, the first increase in more than three years. The dot plot pointed to one more hike this year, and traders now price in a greater-than-60% chance of another move as soon as October. Bond investors welcomed the decision as a sign the Fed remains independent and committed to fighting inflation. President Trump demanded rates at 1% or lower but stopped short of criticising Warsh directly.
Gold and silver fell 0.6–1% yesterday but, as a display of strength, held support. Gold recovered to around $4,290 on Thursday. The stronger dollar capped precious metals, though underlying demand continues to limit the downside. Equities dipped after the decision, with the S&P 500 down 0.55% and the Nasdaq 100 little changed at -0.04%. In today’s session, futures have recovered, rising 0.6%. A limited reaction like this points to relatively muted concern over the hike’s impact on growth.
The dollar had its best day in three months, crossing 100 on the DXY, supported by expectations of further tightening.
Short-end Treasury yields rose sharply, with the two-year at 4.73%, its highest since 2024. The 10-year held at 5% and the 30-year pulled back modestly. This suggests that markets believe the Fed will keep inflation in check.
The CBUAE followed the Fed immediately, raising its Base Rate by 25 basis points to 3.9%. This move is effective today. EIBOR will follow, pushing up costs on variable-rate mortgages and EIBOR-linked business loans. Possible beneficiaries include banks, which stand to gain from wider lending spreads. Also, savers may benefit, as dirham deposit rates should edge higher. UAE equities are likely to respond unevenly in today’s session: banks are better positioned, and property and consumer stocks are likely to face a fresh headwind from higher financing costs.
