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US Fed leaves rates unchanged, sees two small hikes by end of 2023


The Federal Reserve left interest rates unchanged on Wednesday but signaled in new projections that borrowing costs may still need to rise by as much as half of a percentage point by the end of this year, as the US central bank reacted to a stronger-than-expected economy and a slower decline in inflation.

In a press conference at the end of the central bank’s latest policy meeting, Fed Chair Jerome Powell described US growth and the job market as holding up better than expected under the weight of the aggressive monetary policy tightening of the past year – likely lengthening the Fed’s fight to lower inflation but also letting it proceed with less economic damage.

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The pause was out of caution, Powell said, to allow the Fed to gather more information before determining if rates do need to rise again, with the pace of its moves now less important than finding a proper endpoint that slows price increases while minimizing any rise in unemployment.

After a year in which many economists and analysts argued recession was imminent and the economy about to crack, under the Fed’s latest quarterly projections “growth estimates moved up a bit, unemployment estimates moved down a bit, inflation estimates moved up,” Powell said.

Taken together, the data suggested “more restraint will be necessary than we thought,” Powell said of new projections which showed a uniform shift higher in policymakers’ interest rate outlook for the year.

Nine of 18 officials see the benchmark overnight interest rate moving up another half of a percentage point beyond the current 5.00 percent-5.25 percent range, while three others feel it needs to go even higher.

But Powell also said he felt that the pieces of the inflation puzzle were beginning to fall into place, with the Fed focused on “getting the policy right” as it contemplates what may be its final rate increases before declining inflation allows possible rate cuts next year.

“The conditions we need to see … to get inflation down are coming into place,” Powell told reporters, including below-trend growth, a somewhat weaker labor market, and improving supply chains. “But the process of that actually working on inflation is going to take some time.”

It was a subtly optimistic message that tempered otherwise hawkish projections that see the policy rate rising higher than market participants anticipated.

Subadra Rajappa, head of US rates strategy at Societe Generale, said she thought that was no mistake, with the Fed now keeping its options open in case further rate increases are needed, but not committed if inflation does decline faster than anticipated.

“The ‘dots’ are hawkish, but he did a good job of telling markets not to see it as such,” she said.

In fact, investors in contracts tied to the Fed’s policy rate see the central bank delivering only one quarter-percentage-point increase by the end of the year. They see about a 65 percent chance of a rate hike next month, up only slightly from before this week’s meeting.

‘Live meeting’

Though Powell repeated the Fed’s standard warning about “upside” risks to inflation, the decision to hold steady at this time was also an effort to try to ease the pace of price increases “with the minimum damage” to the job market. The new projections showed the unemployment rate rising by the end of 2023 to 4.1 percent from the current 3.7 percent, but that is a significantly smaller increase than the 4.6 percent jobless rate officials projected in March.

“Holding the target (interest rate) range steady at this meeting allows the committee to assess additional information and its implications for monetary policy” before taking another step, the central bank’s rate-setting Federal Open Market Committee (FOMC) said in a unanimous policy statement at the end of its two-day meeting.

Powell said that even as officials have not decided what they will do with rates, the July 25-26 gathering is a “live meeting” which could bring another increase.

“This looks like a meeting where the Committee was split, everybody got something, and nobody got everything. A dovish decision, a hawkish statement, and very hawkish dots,” wrote economists at the analytics firm of Larry Meyer, a former Fed governor. “Ultimately … though Powell was vague on many points, we see his press conference as relatively dovish.”

US stocks fell after the policy decision, but by the end of the day the Nasdaq Composite and the S&P 500 indexes had closed slightly higher. The Dow Jones Industrial Average was off 0.68 percent.

Stronger economic outlook

The Fed’s higher rate outlook coincides with an improved view of the economy and, consequently, slower progress in returning inflation to the central bank’s 2 percent target. It is currently more than double that.

Fed officials at the median more than doubled their outlook for 2023 economic growth to 1 percent, from 0.4 percent in the March projections.

The core Personal Consumption Expenditures Price Index is seen dropping from the current 4.7 percent to 3.9 percent by the end of 2023, compared to a 3.6 percent year-end rate seen in the March policymaker projections.

The policy decision on Wednesday snapped a string of 10 consecutive rate hikes delivered as the Fed responded to the worst outbreak of inflation in 40 years with a matching set of aggressive moves, including four outsized increases of three-quarters of a percentage point last year.

The central bank’s policy rate, which influences household and business borrowing costs throughout the economy, rose a full 5 percentage points from the onset of the tightening cycle in March 2022, reaching the highest level since just before the start of the 2007-2009 recession.

Read more:

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Abu Dhabi Overtakes Oslo for Sovereign Wealth Fund Capital in Global SWF’s First City Ranking

Today, industry specialist Global SWF published a special report announcing a new global ranking of cities according to the capital managed by their Sovereign Wealth Funds (SWFs). The findings show that Abu Dhabi is the leading city that manages the most SWF capital globally, thanks to the US$ 1.7 trillion in assets managed by its various SWFs headquartered in the capital of the UAE. These include the Abu Dhabi Investment Authority (ADIA), Mubadala Investment Company (MIC), Abu Dhabi Developmental
Holding Company (ADQ), and the Emirates Investment Authority (EIA). Abu Dhabi now ranks slightly above Oslo, home to the world’s largest SWF, the Government Pension Fund (GPF), which manages over US$ 1.6 trillion in assets. Abu Dhabi and Oslo are followed by Beijing (headquarters of the China Investment Corporation), Singapore (with GIC Private and Temasek Holdings), Riyadh (home to the
Public Investment Fund), and Hong Kong (where China’s second SWF, SAFE
Investment Corporation, operates from). Together, these six cities represent two thirds
of the capital managed by SWFs globally, i.e., US$ 12.5 trillion as of October 1, 2024.
For the past few decades, Abu Dhabi has grown an impressive portfolio of institutional
investors, which are among the world’s largest and most active dealmakers. In addition
to its SWFs, the emirate is home to several other asset owners, including central banks,
pension funds, and family offices linked to member of the Royal Family. Altogether, Abu
Dhabi’s public capital is estimated at US$ 2.3 trillion and is projected to reach US$ 3.4
trillion by 2030, according to Global SWF estimates.
Abu Dhabi, often referred to as the “Capital of Capital,” also leads when it comes to
human capital i.e., the number of personnel employed by SWFs of that jurisdiction, with
3,107 staff working for funds based in the city.
Diego López, Founder and Managing Director of Global SWF, said: “The world ranking
confirms the concentration of Sovereign Wealth Funds in a select number of cities,
underscoring the significance of these financial hubs on the global stage. This report
offers valuable insights into the landscape of SWF-managed capital and shows how it is
shifting and expanding in certain cities in the world.”

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AM Best Briefing in Dubai to Explore State of MENA Insurance Markets; Panel to Feature CEOs From Leading UAE Insurance Companies

AM Best will host a briefing focused on the insurance markets of the Middle East and North Africa (MENA) on 20 November 2024, at Kempinski Central Avenue in Dubai.
At this annual regional market event, senior AM Best analysts and leading executives
from the (re)insurance industry will discuss recent developments in the MENA region’s
markets and anticipate their implications in the short-to-medium term. Included in the
programme will be a panel of chief executive officers at key insurance companies in the
United Arab Emirates: Abdellatif Abuqurah of Dubai Insurance; Jason Light of Emirates
Insurance; Charalampos Mylonas (Haris) of Abu Dhabi National Insurance Company
(ADNIC); and Dr. Ali Abdul Zahra of National General Insurance (NGI).
Shivash Bhagaloo, managing partner of Lux Actuaries & Consultants, will his present
his observations in an additional session regarding implementation of IFRS 17 in the
region. The event also will highlight the state of the global and MENA region
reinsurance sectors, as well as a talk on insurance ramifications stemming from the
major United Arab Emirates floods of April 2024. The programme will be followed by a
networking lunch.
Registration for the market briefing, which will take place in the Diamond Ballroom at the
Kempinski hotel, begins at 9:00 a.m. GST with introductory comments at 9:30 a.m.
Please visit www.ambest.com/conference/IMBMENA2024 for more information or to
register.
AM Best is a global credit rating agency, news publisher and data analytics
provider specialising in the insurance industry. Headquartered in the United
States, the company does business in over 100 countries with regional offices in
London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.

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Future of Automotive Mobility 2024: UAE Leads the Charge in Embracing Digital Car Purchases and Alternative Drivetrains

-UAE scores show highest percentage among the region in willingness to purchase a car
completely online
– Openness to fully autonomous cars has grown to 60% vs previous 32%.
– More than half of UAE respondents in the survey intend to move to hybrid cars during
next car purchase, while less than 15% intend to move to fully electric car.
– UAE sees strong use of new mobility services such as ride-hailing (Uber, Careem, Hala
Taxi)
– The perceived future importance of having a car is not only increasing in UAE but is
higher than any other major region globally, even China

Arthur D. Little (ADL) has released the fourth edition of its influential Future of Automotive Mobility (FOAM) report, presenting a detailed analysis of current and future trends in the automotive industry. This year’s study, with insights from over 16,000 respondents across 25 countries, includes a comprehensive focus on the United Arab Emirates (UAE). The report examines car ownership, electric vehicles,
autonomous driving, and new mobility services within the UAE.

“The UAE is at the forefront of automotive innovation and consumer readiness for new mobility
solutions,” said Alan Martinovich, Partner and Head of Automotive Practice in the Middle East
and India at Arthur D. Little. “Our findings highlight the UAE’s significant interest in
transitioning to electric vehicles, favorable attitudes towards autonomous driving technologies,
and a strong inclination towards digital transactions in car purchases. These insights are critical
for automotive manufacturers and policymakers navigating the evolving landscape of the UAE
automotive market.”
Key Findings for the UAE:
1. Car Ownership:
o Over half of UAE respondents perceive that the importance of owning a car is
increasing, with the study showing the increase higher than any other major
region, including China.
o Approximately 80% of UAE respondents expressed interest in buying new (as
opposed to used) cars, above Europe and the USA which have mature used
vehicle markets

2. Shift to Electric and Hybrid Vehicles:
o While a high number of UAE respondents currently own internal combustion
engine (ICE) vehicles, more than half intend that their next vehicle have an
alternative powertrain, with significant interest in electric and plug-in hybrid
(PHEV) options. Less than 15% plan to opt for pure battery electric vehicles
(BEVs).

3. Emerging Mobility Trends:

o Ride-hailing services are the most popular new mobility option among UAE
residents, with higher usage rates than traditional car sharing and ride sharing.
The study indicates a strong openness to switching to alternative transport modes
given the quality and service levels available today.

4. Autonomous Vehicles:
o UAE consumers are among the most open globally to adopting autonomous
vehicles, with a significant increase in favorable attitudes from 32% in previous
years to 60% this year versus approximately 30% in mature markets. Safety
concerns, both human and machine-related, remain the primary obstacles to
broader adoption.

5. Car Purchasing Behavior and Sustainability:
o The internet has become a dominant channel for UAE residents throughout the car
buying process, from finding the right vehicle to arranging test drives and closing
deals. UAE car buyers visit dealerships an average of 3.9 times before making a
purchase, higher than any other region in the world, emphasizing the need for
efficient integration of online and offline experiences.
o Upwards of 53% of respondents from the region would prefer to ‘close the deal’
and complete the purchase of their car online, which is the highest for any region
in the world.
o Sustainability is a key factor cited by UAE consumers as influencing car choice.
The UAE scored among the top half of regions, highlighting the importance of
environmental considerations.

“Our study confirms the promising market opportunities for car manufacturers (OEMs) and
distributors in the UAE” commented Philipp Seidel, Principal at Arthur D. Little and co-Author
of the Global Study. “Consumers in the Emirates show a great and increasing appetite for cars
while being among the most demanding globally when it comes to latest vehicle technologies
and a seamless purchase and service experience.”
The comprehensive report, “The Future of Automotive Mobility 2024” by Richard Parkin and
Philipp Seidel, delves into global automotive trends and their impact on various regions,
including the UAE. This study is an invaluable tool for industry stakeholders seeking to navigate
and leverage the dynamic changes driving the future of mobility.

 

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