With the US Federal Reserve holding rates again and Chairman Powell effectively implying that the US economy is undergoing a soft landing, the effect is likely to be positive for the GCC economies, an expert said.
The Fed move implies that addressing inflation is feasible without triggering a recession or substantial spikes in unemployment. Powell’s assertion finds backing in the ongoing growth of the US economy, low unemployment rates, and robust wage levels. His statement underscores the intricate interplay between inflation and unemployment, especially in a year marked by heightened uncertainties, including rising geopolitical tensions and the upcoming presidential elections. Historically, such election years tend to exert more pressure on the equities market than the post-election period.
“Regarding the second aspect, this is viewed as a positive development for the economies of the GCC and, by extension, their markets. The recent decision by the Federal Reserve has solidified the trajectory of declining interest rates for the remainder of the year, with the bond market indicating the likelihood of the first rate cut occurring in June. Lower rates, or even the anticipation of such, bode well for businesses as they imply more accommodating financial conditions, facilitating easier and more cost-effective borrowing. This, in turn, benefits earnings, a factor that is likely to be reflected in stock levels.” said, Amro Zakaria, Senior Market Analyst – MENA at FOREX.com – part of StoneX Group Inc.
“Moreover, GCC governments are poised to sustain expenditures on national projects as part of their economic diversification plans, contingent on oil prices remaining above levels considered consistent with their budget calculations. The potential risk lies in geopolitical tensions escalating in the region and adversely impacting investor sentiment, although, at present, this does not appear to be the case.”