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The Federal Reserve's extended pause on rate cuts is now more likely due to stronger-than-expected U.S. nonfarm payrolls and rising oil prices, according to UOB's Alvin Liew. The latest employment report showed 254,000 jobs added in July, far exceeding forecasts of 180,000, while oil prices climbed to $85/barrel amid Middle East tensions. These developments have reduced market expectations for Fed rate cuts in 2026 from 75% to 55%, as policymakers may prioritize inflation control over economic slowdown risks.
For markets, the delayed rate cuts could prolong USD strength against emerging market currencies and commodities. Traders should monitor the Fed's upcoming Jackson Hole symposium in August for further clues on policy direction. The oil market faces added volatility from geopolitical risks in the Gulf, which could pressure energy prices and indirectly affect global equity markets.
MENA investors should watch how higher oil prices impact regional budgets and sovereign wealth fund strategies. The extended Fed pause may also influence Gulf banks' lending rates and capital flows into Saudi and UAE equities. Key indicators to track include August U.S. inflation data and OPEC+ production decisions in September.
