The US Federal Reserve held interest rates steady on Wednesday, despite intense pressure from President Donald Trump.
The decision, which kept the Fed's target range for rates unchanged at between 3.5 per cent and 3.75 per cent, was followed by the UAE Central Bank, which moves in line with the Fed on monetary policy because of the dollar peg.
In defending the decision, Fed chairman Jerome Powell pointed to signs of stabilisation in the labour market while inflation remains "somewhat elevated".
Mr Powell also ruled out a rate increase as the Fed's next move, although he did raise the bar for future policy reductions. He also suggested that the committee is content with assessing how the economy evolves in the coming months.
“There was broad support on the committee for holding today,” he told reporters.
Wednesday’s decision was voted against by two Fed governors – Stephen Miran and Christopher Waller – who preferred to cut rates by 25 basis points.
Mr Powell said the federal funds rate is within the range of what officials refer to as neutral, the level at which rates neither speed up nor slow down the economy. This comes after the Fed reduced rates three times in its final three meetings last year.
The Fed at the time had moved to cut rates after the labour market showed signs of weakening, although recent data indicate stabilisation. Meanwhile, inflation remains well above Fed’s 2 per cent goal.
“This normalisation of our policy stance should help stabilise the labour market while allowing inflation to resume its downward trend toward 2 per cent once the effects of tariff increases have passed through,” Mr Powell said.
He said upside risks to inflation are still less than downside risks to the employment side of the Fed’s dual mandate, but noted a weakening labour market would push the Fed to move again
“If inflation were at the same time getting worse, you just have a very difficult situation there. So we'll be looking at both,” Mr Powell said.
The Fed’s decision to keep rates unchanged was virtually locked in heading into this week’s two-day meeting. Now, it is expected to be on pause for the coming months.
Futures markets expect the Fed to keep rates paused this quarter before delivering its first cut of the year in June, CME Group data indicates.
Wednesday's decision comes at a time of increasing pressure from Mr Trump, who has persisted in attacking the central bank for not lowering rates at the speed or scale that he wants.
Mr Powell previously said Mr Trump's administration launched a criminal investigation into allegations of perjury when he answered questions from senators last June about the Fed's renovation project.
Mr Powell accused it of being a cover-up story to pressure the Fed into lowering interest rates.
But on Wednesday, he declined to comment when pressed on the criminal inquiry.
With Mr Powell's term as Fed chairman set to expire in May, traders are now turning attention towards who his successor might be.
Markets predict Rick Rieder, BlackRock's chief investment officer for global income, as favourite to next lead the Fed. Mr Waller, White House economic adviser Kevin Hassett and former Fed governor Kevin Warsh are also in contention.
Mr Powell has not said if he would continue to serve out the remaining two years of his term as Fed governor when his chairmanship ends.
