The FED interest rate remains unchanged: What this means for expats in Dubai

Published on: 03/14/16 05:47:pm

Last week the Federal Reserve decided to not raise their interest rates; holding the federal funds rate target at 0 to 0.25 %. While the FED decision of no interest rate hike was largely expected, the nuances had its fair share of surprises.

China Slowdown

Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” This line above is the key. The FED is clearly hinting at China’s slowdown in its statement. Janet Yellen, the Federal Reserve chairwoman also commented, The outlook abroad appears to have become more uncertain of late. And heightened concerns about growth in China and other emerging markets economies have led to notable volatility in financial markets.”

The Economist are now calling this the “China Wobble” and are monitoring the global economy more closely than last year; which is to be expected. We are now increasingly more connected globally and the world’s second largest economy impacts greatly on the global economic outlook.

In short, the FED is uncertain about the economic condition in China and how that could potentially affect their exports. So for now the rates remain unchanged until they take a closer look at their data and figure things out.

Thus we can conclude that the spotlight has shifted to China, as everything else is moving as a derivative of the notorious China slowdown. We do believe the Chinese authorities have the will and the power to support their market and economy, it just needs to be done gradually.

How does this affect the market?

The US central bank has an undoubted effect on the financial market worldwide, here is a brief outlook:

  1. The FED’s decision means that bond markets should be strong, as inflation is still many quarters away.
  2. Emerging market currencies have found a bid, so have the Pound and Euro.
  3. Stocks initially rallied but fizzled away. Stock markets like low rates but they hate uncertainty.
  4. There could a long sideways consolidation move in developed markets stock indices until the FED actually does something.

What does this mean for expats in Dubai?

More closer to home, GWM advises expats in Dubai on long term, strategically created balanced financial portfolios. In the coming months we can be reasonably certain of navigating volatility with considerable ease.  Even our most risky portfolios have defensive assets like bonds and cash – reducing risk.

We understand that you are concerned and encourage you to get in touch with our professionals to better prepare your financial portfolio.

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