Fed interest rate increase impact on the Gulf and expectations to follow

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Over their last meeting in 2016, the US Federal Reserve raised interest rate last week by 0.25% to a current 0,5%. The raise  has been anticipated by economists and world markets have accommodated the raise.

The decision comes at a time the US stands with strong economic indicators of a 2% inflation rate and a 5% Unemployment rate, which reflect positive indicators for this move that comes after a decade. Raising the interest rate makes the dollar more appealing over other currencies leading investors to invest in the US economy over emerging markets specially with current world capital flight into the US, 2017 will be more appealing for US investors.

On the other hand, the Gulf currencies being connected to the US Dollar, may need to raise their interest rates within the same average formula, causing an increase in corporate and individual loans within these countries, the sector that may be highly affected by the rates increase will be the Real Estate sector that relies on  long term loans engagement for their projects and may be subjected to an increase, similarly, Gulf treasury bills will be more expensive.

There are speculations that similar raises are expected in 2017 as economists confirmed that the Federal Reserve will wait six months before raising interest rates again, according to a survey of top economists that suggests policymakers will maintain a cautious approach to tightening policy until they see the economic package US president-elect Donald Trump has promised. Officials will raise the Fed’s key short-term rate just twice in 2017, starting with a move in June.

 

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