All eyes are on the US Federal Reserve today as policymakers are set to wrap up their two-day meeting with another round of interest rate increase.
It has been widely speculated that the Federal Open Market Committee (FOMC), which will issue a written statement at 2pm EDT (10p.m., UAE time) today, will raise benchmark rates by 75 basis points (bps).
Some analysts, however, are anticipating a more significant hike of 100bps.
The rate adjustment is meant to tame inflation, which is at multi-decade highs, but it is already having a global impact, with stock markets and risk assets like gold and cryptocurrencies seeing declines recently.
Federal Reserve Chair Jerome Powell had indicated last month that the Fed would be aggressively increasing interest rates that could hurt consumers and businesses.
"While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses," Powell had said.
"These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain."
What to expect
The results of the FOMC meeting are expected to set the tone of interest rates worldwide.
Should the FOMC continue with its tighter policy and deliver another rate increase, central banks in many markets including the GCC states are likely to follow suit. A fresh round of interest rate hikes could mean higher borrowing costs for businesses and households.
Last July, the UAE Central Bank raised the base rate applicable to overnight deposit facility by 75bps, in line with the Fed's last increase.
Will it be 75bps or 100bps?
Investment banks have recently raised their Fed rate hike forecasts from 50bps to 75bps.
"A flurry of Fed officials in recent days have made hawkish comments suggesting little appetite to slow down the pace of rate hikes just yet," Bill Diviney, ABN Amro's senior economist, said in a note.
The markets are already taking into account the odds of a bigger Fed hike.
According to Ed Yardeni, president of Yardeni Research, a provider of global investment strategies, said that the next increase will be bigger than expected.
"I do think they're going to come around and conclude that they will just get it over with...maybe a 100 basis points instead of 75 basis points," Yardeni told CNBC last week.
A week ago, the CME FedWatch tool indicated that there's a 34% probability of a 100bps rate increase.
(Reporting by Cleofe Maceda; editing by Seban Scaria)