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The US Federal Reserve cut its benchmark interest rate by 25 basis points (bps) on September 17, lowering the federal funds target range to 4–4.25 per cent, the first reduction since December 2024.
The move, aimed at cushioning the economy from a weakening labour market, had been fully priced in by investors after chairman Jerome Powell’s dovish tone at Jackson Hole and signs of cooling employment. The S&P 500 rose 3 per cent in the past month in anticipation of the decision.
In its statement, the Fed said: “Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated… In support of its goals and in light of the shift in the balance of risks, the committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4 to 4-1/4 per cent.”
The central bank also signaled the possibility of two further cuts in 2025, barring surprises in inflation or jobs data, though its projections point to just one reduction in 2026.
Commenting on the development, Josh Gilbert, market analyst at eToro, said: “For investors, the Fed’s decision represents a supportive backdrop. While markets may need a pause after strong gains, historically rate cuts outside of recessions have been a positive catalyst for equities. Sectors to watch include technology, small caps, housing-related stocks, real estate, gold, and Bitcoin.”
Fed rate cut’s implications for the GCC
Commenting on the move, Hamza Dweik, head of Trading MENA at Saxo Bank, said: “The ripple effects are set to be felt across the UAE, wider GCC, and Jordan economies, whose monetary policies closely follow the Fed due to their dollar pegs. The immediate impact would be lower borrowing costs, easing financial burdens on governments, corporates, and households alike. This could inject fresh momentum into investment and fiscal activity, particularly in non-oil sectors.”
Dweik added that cheaper capital would likely reignite appetite for real estate and infrastructure projects in the UAE and Gulf, while retail and consumer industries stand to benefit from households redirecting savings from lower loan repayments into discretionary spending. In Jordan, he noted, relief would be felt more directly by households, which are highly sensitive to debt costs.
Vijay Valecha, CIO at Century Financial, said: “For the GCC, a cut means lower borrowing costs, improved liquidity, and a more supportive backdrop for growth. Key sectors poised to gain include real estate and consumer discretionary industries such as retail, autos, tourism, and hospitality. Banks may face slimmer net-interest margins, but stronger credit demand could offset this. Importantly, national diversification agendas from Saudi Vision 2030 to the UAE’s industrial strategy would receive an added boost from cheaper capital.”
Valecha noted that Jordan’s benefits would be more limited, given fiscal pressures and public debt of around 117 per cent of GDP, though households and SMEs would still see relief from cheaper loans.
For consumers across the Gulf, analysts said, the effect will be immediate: lower credit card, mortgage, and personal loan rates. Savers, however, will face weaker deposit returns, with investors expected to redirect funds into equities, real estate, or alternative assets.
GCC Central Banks cut rates in response
Saudi Arabia, the region’s biggest economy, cut its repurchase agreement (repo) rate by 25 bps to 4.75 per cent and its reverse repo rate also by 25 bps to 4.25 per cent. The UAE’ central bank also reduced the base rate applied to its overnight deposit facility by 25 bps to 4.15 per cent, from 4.40 per cent, effective Thursday, reported Reuters.
