– In response to the Fed’s policy easing, major Gulf stock markets saw gains, with Dubai’s main share index rising 0.5% and Abu Dhabi’s index increasing 0.2%. The UAE central bank also cut its base rate by 0.5 percentage points to 4.90%, reflecting alignment with the Fed’s actions.

– The Federal Reserve announced a 50 basis point cut in its benchmark interest rate, lowering it to a range of 4.75% to 5%, the first reduction since March 2020. This move marks a shift from the 5.25% to 5.5% range maintained since July 2023.

– The Fed’s decision, influenced by progress in controlling inflation, has broader global implications, affecting foreign exchange markets and borrowing costs, particularly for emerging markets with dollar-denominated debt.

The Federal Reserve announced a highly anticipated interest rate cut, reducing the benchmark rate by 50 basis points from its highest level in 23 years. This move follows progress in the fight against inflation.

The Fed’s first rate cut since March 2020 lowered the federal funds rate to a range of 4.75% to 5%. Previously, rates were at a 5.25% to 5.5% range since July 2023, the highest since 2001, as the central bank watched for signs of inflation nearing its 2% target.

“The actions of the Federal Reserve Board they’re not just limited to the US. They have an implication, a spillover effect in other parts of the world also,” said Reena Aggarwal, director of Georgetown University’s Psaros Center for financial markets and policy, in an interview with CNBC.

Fed decisions also affect foreign exchange markets due to their influence on the value of the US dollar, the global reserve currency.

Aggarwal noted, “Emerging markets are impacted because a lot of their borrowing is in dollars. And so they’ve got to repay the interest and the principal in dollars. And if interest rates are changing in the US, all the cost of borrowing is changing.”

Stocks responded positively to the announcement, with both the Dow Jones and the S&P 500 reaching record highs shortly after the decision.

Impact on Gulf markets

“Major Gulf stock markets gained in early Thursday trading following interest rate cuts by regional central banks, prompted by the U.S. Federal Reserve’s larger-than-usual policy easing.

Dubai’s main share index rose 0.5%, driven by a 1.2% increase in blue-chip developer Emaar Properties.

In Abu Dhabi, the index climbed 0.2%. The UAE central bank also reduced its base rate on the overnight deposit facility by 0.5 percentage points to 4.90%.

Monetary policy in the Gulf Cooperation Council (GCC) frequently aligns with Fed decisions due to most regional currencies being pegged to the US dollar, according to Reuters report.