US Fed in search for stopping point to current interest tightening cycle

After pausing rate increases in June, US policymakers lifted borrowing costs again at their policy meeting last week for the 11th time since March 2022 to curb inflation.
The quarter percentage-point hike, stated as a unanimous decision, boosted the target range for the US central bank - Fed Reserve’s benchmark federal funds rate to 5.25% to 5.5%, the highest level in 22 years.
Mirroring the move by the US Federal Reserve (Fed) Qatar and other GCC central banks have all raised rates by 25 bps or 0.25%.
On July 26, Qatar Central Bank (QCB) raised the QCB deposit rate (QCBDR) by 25 basis points, to 5.75%.
QCB also decided to raise the banks’ lending interest rate (QCBLR) by 25 basis points, to become 6.25%, and the repurchase rate (QCB Repo Rate) by 25 basis points, to become 6%
The revised rates took effect on July 27, QCB said.
Some analysts believe this is likely to be the final hike of this cycle, given that inflation has peaked and economies are slowing rapidly.
“We still think the Fed will start cutting rates next year, encouraging banks across the GCC to ease policy rates,” Oxford Economics said in its latest weekly briefing.
“We expect the hike to be last of this cycle but think the Fed will stay committed to its data-dependent approach.
“The Fed will likely start cutting rates next year, which will allow the GCC central banks to begin easing policy. Still, rates will likely only come down gradually, which will drag non-oil GDP growth in the region down to 3.9% in 2024, from 4.4% this year,” Oxford Economics noted.
That said, Fed chair Jerome Powell left open the possibility of further hikes, which he emphasised will depend on incoming data that has recently signalled a resilient US economy.
Powell refused to be pinned down on when officials may hike again, citing a raft of economic reports due before the Fed’s next meeting in September, including two jobs reports-on consumer-price inflation and data on employment costs.
“All of that information is going to inform our decision as we go into that meeting,” he said. “It is certainly possible that we would raise [rates] again at the September meeting, if the data warranted. And I would also say it is possible that we would choose to hold steady at that meeting.”
The Fed has since early last year engaged in the most aggressive tightening campaign since the 1980s in an effort to curb inflation, which in 2022 hit a 40-year high.
While policymakers’ paused rate hikes last month to assess the impact of previous moves, they also signalled at the time that two more increases would probably be appropriate by the end of the year.
Meanwhile, the Middle East growth has been forecast to slow to 2.5% this year weighed down by the bigger than expected slowdown in Saudi Arabia, the International Monetary Fund has said.
IMF recently cut its 2023 GDP growth projection for Saudi Arabia to 1.9% in its latest World Economic Outlook update to reflect the impact of prolonged oil production cuts.