Fed hits pause on interest rate increases

The Federal Reserve on Wednesday left US interest rates unchanged following recent data that points to a cooling economy.

Following Wednesday's decision, the federal funds rate remains between 5.25 per cent and 5.50 per cent. It is the second time the Fed has paused rates since March 2022.

“We've covered a lot of ground,” Fed Chairman Jerome Powell told reporters.

“Looking ahead, we're in a position to proceed carefully in determining the extent of additional policy firming that may be appropriate.”

Ahead of the decision, markets were optimistic that the Fed was done with raising rates for this year. but the central bank has left the door open for one more.

According to its Summary of Economic Projections released alongside the rates decision, the Fed projects the federal funds rate will reach 5.6 per cent by year's end.

The question that the Fed currently faces is not for when it should cut interest rates, but instead finding a level that is sufficiently restrictive enough.

Economic data has been mixed in recent months, but recent trends generally show signs that the economy is moving in the direction the Fed wants it to.

The labour market appears to be softening at a steady clip while unemployment remains historically low. And while inflation ticked up 0.6 per cent last month, underlying measures showed signs of cooling.

Wage growth, however, still remains strong.

“We want to see convincing evidence … that we have reached the appropriate level,” Mr Powell said.

“We need to see more progress before we'll be willing to reach that conclusion."

By raising its interest rates to the target 5.25 per cent to 5.50 per cent range, the central bank has sought to accomplish a soft landing by slowing down the economy without pushing it into a recession.

The hawkish Fed chairman has also cautioned markets that the central bank is prepared to raise rates further if data merits it.

He and his colleagues have repeatedly indicated they will maintain a restrictive monetary stance, keeping rates high for some time.

The central bank now anticipates rates will fall to 5.1 per cent by the end of 2024, up from its June estimation of 4.6 per cent.

“We intend to hold policy and restrictive level until we're confident that inflation is moving down sustainability,” Mr Powell said

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

The biog

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Saturday's results

Brighton 1-1 Leicester City
Everton 1-0 Cardiff City
Manchester United 0-0 Crystal Palace
Watford 0-3 Liverpool
West Ham United 0-4 Manchester City

'Nightmare Alley'

Director:Guillermo del Toro

Stars:Bradley Cooper, Cate Blanchett, Rooney Mara

Rating: 3/5

The Travel Diaries of Albert Einstein The Far East, Palestine, and Spain, 1922 – 1923
Editor Ze’ev Rosenkranz
Princeton

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MS, an energy sector employee from South Africa, left the UAE in August after losing his Dh12,000 job. He was struggling to meet the repayments while securing a new position in the UAE and feared he would be detained if he returned. He has now secured a new job and will return to the Emirates this month.

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