The US Federal Reserve raised interest rates by 75 basis points at its meeting last week, bringing the Fed Funds rate to 1.75 per cent on the top end.
This was more than the 50bps that had been telegraphed after the May meeting, although in the days before the June meeting the market had priced in a 75bps move.
There were two data points that probably caused the Fed to accelerate the pace of rate increases: May inflation data and the preliminary University of Michigan consumer sentiment survey for June, which had been released only a few days before the Federal Open Market Committee (FOMC) met last week.
US inflation had risen by much more than expected in May and — of particular concern to the Fed — the price pressures were broad-based, going beyond food and energy.
While the consumer sentiment index fell to a record low in June, the most worrying aspect for the US central bank would have been the increase in long-term inflation expectations from 3 per cent to 3.3 per cent — well above their 2 per cent target.
The statement from the meeting showed that the FOMC is “strongly committed to returning inflation” to the Fed’s target level of 2 per cent and will be prepared to “adjust the stance of monetary policy as appropriate”.
With inflationary pressures expected to remain high in June, it seems probable that the Fed will again increase the benchmark rate by 75bps at the July meeting, before returning to 50bps increments over the remaining meetings this year. This would take the upper bound of the Fed Funds rate to 4 per cent by December, an astonishing 375bps increase from the start of the year.
The path ahead for interest rates has raised concerns about US recession risks over the next 12 months in some quarters, but the Fed still seems to think that a “soft landing” can be achieved.
The US central bank now expects real gross domestic product growth to slow to 1.7 per cent this year, down from its earlier forecast of 2.8 per cent in March, while the unemployment forecast for 2022 was revised up only slightly to 3.7 per cent, from 3.5 per cent previously.
There was a larger revision to the 2023 unemployment forecast with the Fed now expecting 3.9 per cent next year compared with 3.5 per cent previously. However, this is still a very low level of unemployment by historical standards.
As expected, the Fed also revised its inflation projections higher. But in order to achieve its new forecast of 5.2 per cent on its preferred inflation measure in 2022, inflation will need to decline every month from June until the end of the year, which looks optimistic.
Historically, the Central Bank of the UAE has moved in line with the Fed on interest rates, and it did so again last week, with the UAE base rate rising 75bps to 1.65 per cent.
We expect borrowing costs in the UAE to rise in line with US rates over the coming months, which could prove a headwind to non-oil sector growth this year as households and businesses slow borrowing to spend and invest.
This may be a welcome development in some areas of the economy, such as property, where higher rates may help to cool the rapid price growth seen over the last couple of years.
Furthermore, the UAE and other GCC governments have the option of using fiscal policy as a lever to support non-oil growth, if they choose to do so, by channeling some of their expected budget surpluses into domestic investment.
Khatija Haque is chief economist and head of research at Emirates NBD
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'Laal Kaptaan'
Director: Navdeep Singh
Stars: Saif Ali Khan, Manav Vij, Deepak Dobriyal, Zoya Hussain
Rating: 2/5
What is a black hole?
1. Black holes are objects whose gravity is so strong not even light can escape their pull
2. They can be created when massive stars collapse under their own weight
3. Large black holes can also be formed when smaller ones collide and merge
4. The biggest black holes lurk at the centre of many galaxies, including our own
5. Astronomers believe that when the universe was very young, black holes affected how galaxies formed
In Full Flight: A Story of Africa and Atonement
John Heminway, Knopff
How to watch Ireland v Pakistan in UAE
When: The one-off Test starts on Friday, May 11
What time: Each day’s play is scheduled to start at 2pm UAE time.
TV: The match will be broadcast on OSN Sports Cricket HD. Subscribers to the channel can also stream the action live on OSN Play.
SUZUME
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MATCH INFO
Asian Champions League, last 16, first leg:
Al Jazira 3 Persepolis 2
Second leg:
Monday, Azizi Stadium, Tehran. Kick off 7pm
The burning issue
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
Read part four: an affection for classic cars lives on
Read part three: the age of the electric vehicle begins
Read part one: how cars came to the UAE
Why seagrass matters
- Carbon sink: Seagrass sequesters carbon up to 35X faster than tropical rainforests
- Marine nursery: Crucial habitat for juvenile fish, crustations, and invertebrates
- Biodiversity: Support species like sea turtles, dugongs, and seabirds
- Coastal protection: Reduce erosion and improve water quality
Company profile
Company: Eighty6
Date started: October 2021
Founders: Abdul Kader Saadi and Anwar Nusseibeh
Based: Dubai, UAE
Sector: Hospitality
Size: 25 employees
Funding stage: Pre-series A
Investment: $1 million
Investors: Seed funding, angel investors
Why it pays to compare
A comparison of sending Dh20,000 from the UAE using two different routes at the same time - the first direct from a UAE bank to a bank in Germany, and the second from the same UAE bank via an online platform to Germany - found key differences in cost and speed. The transfers were both initiated on January 30.
Route 1: bank transfer
The UAE bank charged Dh152.25 for the Dh20,000 transfer. On top of that, their exchange rate margin added a difference of around Dh415, compared with the mid-market rate.
Total cost: Dh567.25 - around 2.9 per cent of the total amount
Total received: €4,670.30
Route 2: online platform
The UAE bank’s charge for sending Dh20,000 to a UK dirham-denominated account was Dh2.10. The exchange rate margin cost was Dh60, plus a Dh12 fee.
Total cost: Dh74.10, around 0.4 per cent of the transaction
Total received: €4,756
The UAE bank transfer was far quicker – around two to three working days, while the online platform took around four to five days, but was considerably cheaper. In the online platform transfer, the funds were also exposed to currency risk during the period it took for them to arrive.
Paatal Lok season two
Directors: Avinash Arun, Prosit Roy
Stars: Jaideep Ahlawat, Ishwak Singh, Lc Sekhose, Merenla Imsong
Rating: 4.5/5
Hunger and Fury: The Crisis of Democracy in the Balkans
Jasmin Mujanović, Hurst Publishers
Afghanistan squad
Gulbadin Naib (captain), Mohammad Shahzad (wicketkeeper), Noor Ali Zadran, Hazratullah Zazai, Rahmat Shah, Asghar Afghan, Hashmatullah Shahidi, Najibullah Zadran, Samiullah Shinwari, Mohammad Nabi, Rashid Khan, Dawlat Zadran, Aftab Alam, Hamid Hassan, Mujeeb Ur Rahman.
The specs
Engine: 3-litre twin-turbo V6
Power: 400hp
Torque: 475Nm
Transmission: 9-speed automatic
Price: From Dh215,900
On sale: Now
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Emirates Cricket Board Women’s T10
ECB Hawks v ECB Falcons
Monday, April 6, 7.30pm, Sharjah Cricket Stadium
The match will be broadcast live on the My Sports Eye Facebook page
Hawks
Coach: Chaitrali Kalgutkar
Squad: Chaya Mughal (captain), Archara Supriya, Chamani Senevirathne, Chathurika Anand, Geethika Jyothis, Indhuja Nandakumar, Kashish Loungani, Khushi Sharma, Khushi Tanwar, Rinitha Rajith, Siddhi Pagarani, Siya Gokhale, Subha Srinivasan, Suraksha Kotte, Theertha Satish
Falcons
Coach: Najeeb Amar
Squad: Kavisha Kumari (captain), Almaseera Jahangir, Annika Shivpuri, Archisha Mukherjee, Judit Cleetus, Ishani Senavirathne, Lavanya Keny, Mahika Gaur, Malavika Unnithan, Rishitha Rajith, Rithika Rajith, Samaira Dharnidharka, Shashini Kaluarachchi, Udeni Kuruppuarachchi, Vaishnave Mahesh
Specs
Engine: Electric motor generating 54.2kWh (Cooper SE and Aceman SE), 64.6kW (Countryman All4 SE)
Power: 218hp (Cooper and Aceman), 313hp (Countryman)
Torque: 330Nm (Cooper and Aceman), 494Nm (Countryman)
On sale: Now
Price: From Dh158,000 (Cooper), Dh168,000 (Aceman), Dh190,000 (Countryman)
MATCH INFO
Uefa Champioons League semi-final:
First leg: Liverpool 5 Roma 2
Second leg: Wednesday, May 2, Stadio Olimpico, Rome
TV: BeIN Sports, 10.45pm (UAE)
