The US Federal Reserve has set the stage for a significant turn in global monetary policy with its latest signal that two more interest rate cuts are on the horizon this year, following the quarter-point move announced on Wednesday.
The “dot plot” of policymakers’ projections now points to a federal funds rate ending 2025 in a range of 3.50 to 3.75 per cent, down from the current 4.00 to 4.25 per cent after this week’s adjustment. The decision marks the start of a new easing cycle after a prolonged period of monetary restraint and comes against the backdrop of a surprisingly resilient US economy and lingering inflation concerns.
The implications of this pivot are profound for the GCC where currencies are largely pegged to the US dollar, binding regional monetary policy closely to the Fed’s trajectory.
For the UAE, the effects will be felt most directly in lending costs, mortgage affordability, and real estate activity, sectors that have shown remarkable dynamism in recent years but remain sensitive to shifts in borrowing costs. With the dirham pegged to the dollar, the Central Bank of the UAE mirrors US policy moves almost instantly, meaning the Fed’s easing path translates into lower rates across the emirates.
The timing could prove positive for the UAE’s property market, which has experienced an extraordinary rally since 2021. Prices in Dubai rose more than 20 per cent last year and continued to climb through mid-2025, driven by foreign inflows, population growth, and demand for super-prime residences.
As interest rates remained elevated, mortgage demand showed signs of moderation, particularly in the mid-market and affordable segments. A shift to cheaper financing would immediately ease pressure on buyers who had been holding back due to high borrowing costs, potentially broadening the base of demand beyond cash-rich investors who have dominated the market.
Developers and brokers expect this to inject fresh momentum into sales volumes. In Dubai, mortgage transactions fell marginally in the first half of 2025, even as overall sales hit record levels, a sign that higher rates had deterred leveraged buyers. Lower borrowing costs could reverse that trend, opening up access for residents and expatriates aiming to transition from renting to ownership. Abu Dhabi, which has recently rolled out new luxury projects and expanded its waterfront offerings, would also stand to benefit from improved mortgage affordability.
At the same time, the easing cycle could ease financial stress on households and businesses with existing loans. For banks in the UAE and wider GCC, however, lower interest income could weigh on margins, though the drag may be offset by higher credit growth and healthier demand for mortgages, corporate loans, and refinancing. The broader impact will be to support economic activity, aligning with the region’s own growth strategies. The IMF expects the UAE economy to expand by more than 5 per cent in 2025, supported by diversification efforts, strong oil revenues, and robust non-oil sector activity.
Jerome Powell, the Fed chair, acknowledged the complexity of the current environment, describing it as “an unusual situation.” Inflation has moderated but remains above the Fed’s target, while the US labor market, though cooling, continues to display underlying strength. “We have two-sided risk,” Powell said. “There’s no risk-free path.” That uncertainty has produced a wide range of views among policymakers, with 18 members projecting at least one cut this year, one seeing as many as six, and only a single official predicting no change.
For the GCC, the Fed’s tilt toward easing reduces the likelihood of capital outflows that might have followed had the region kept rates elevated while global borrowing costs declined. The dollar’s relative stability ensures that GCC currencies remain strong anchors, but the added liquidity and lower financing costs could make Gulf markets more attractive to foreign investors seeking higher yields in real estate and equities.
Dubai’s stock market, already buoyed by IPO activity and strong earnings from banks and property developers, may gain further traction as liquidity conditions improve.
The easing cycle also has the potential to spur regional mortgage innovation. Banks across the UAE have increasingly been offering fixed-rate products to cushion buyers from past rate hikes, but with a downward shift in the rate curve, variable mortgage offerings may regain appeal. This could expand choice for borrowers and stimulate competition in a market where financing has often been dominated by a handful of large lenders.
Analyst said risks remain still . A too-rapid surge in demand could reignite fears of overheating in Dubai’s property market, where supply pipelines are already heavy, with more than 70,000 new units expected by end-2025. For regulators, balancing affordability with financial stability will be key, especially as lower rates tempt more leveraged buyers into the market. The Central Bank of the UAE is likely to remain vigilant, ensuring that lending standards and capital requirements remain robust even as monetary conditions ease.
Analysts also argue the Fed’s decision to open the door to more cuts is a welcome tailwind for the GCC. In the UAE, where real estate and mortgages are central to household wealth and economic momentum, the easing cycle offers the prospect of sustained growth, broader market participation, and greater affordability. After two years of tight money, the prospect of cheaper credit could well be the spark that fuels the next chapter of the UAE’s real estate boom.
