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Daily Economic Update
30.10.2025
US: Fed cuts interest rates by 25 bps and Chair Powell says December cut “far from” forgone conclusion. As widely expected, the FOMC cut the Fed fund rate by 25 bps to the 3.75-4% range, in a 10-2 vote. Dissents came from Stephen Miran, who continued to pitch for a larger 50-bps cut, and Kansas City Fed President Jeff Schmid, who voted to keep rates on hold. The committee noted “downside risks to employment rose in recent months,” with inflation “somewhat elevated”. The FOMC also decided to halt the bank’s three-year long quantitative tightening (balance-sheet runoff) program by December 1, ending the $5bn monthly treasury security unwinding, while continuing with mortgage-based securities runoff at $35bn per month, but reinvesting those proceeds in treasuries, citing tightened liquidity in financial market conditions. Chair Powell, in his post meeting conference, disappointed the market, which had priced in a near certain rate cut in December prior to the FOMC outcome, saying, it “is not a foregone conclusion, far from it.” This pushed treasury yields higher across the curve, with 10Y closing almost 10bps higher at 4.07%. Powell highlighted “strongly different views” about the move in December, emphasizing that “for some part of the committee it’s time to maybe take a step back” and see whether there really are downside risks to the labor market,” along with an uncertain tariff impact. But inversely, he underscored weakening job market conditions and that some measures of inflation (which are not impacted by tariffs) were not too far from the Fed’s 2% goal. He also noted that the inflation and employment outlooks haven’t changed much since the meeting in September and surveys and private data don’t indicate any material developments in the job market. Interestingly, Powell mentioned that there is also a point of view that the increased uncertainty and the lack of data due to the government’s shutdown are reasons for the Fed not to make a move in December. The futures market is currently signaling around 70% chance of a cut in December, lower than 90+% before Powell’s speech.
US-China-South Korea: Trump-Xi meeting ends, fentanyl tariffs cut to 10%; trade deal with South Korea finalized. The highly awaited Trump-Xi meeting in South Korea this morning ended a while ago, and details are still evolving. Trump referred to the meeting as “amazing”, rating it “12 out of 10” and stated that fentanyl-linked tariffs on Chinese goods would be cut to 10% (from 20%), with China committing to resuming US soybean purchases and removing curbs on flows of rare earth minerals for at least a year. Trump will visit China in April. Meanwhile, yesterday, the US and South Korea finalized their previously agreed trade framework, whereby the latter would invest $150bn in US shipbuilding projects and the remaining $200bn in cash (up to $20bn annually) out of the earlier pledged $350bn worth of investments. The deal would also ratify 15% concessional tariffs on most South Korean goods, including its auto exports to the US. Trump also authorized South Korea to build a nuclear-powered submarine in the US.
Japan: BoJ keeps rates unchanged but with two members dissenting for the second meeting in a row. In line with expectations, the Bank of Japan (BoJ) kept rates unchanged at 0.5% for the sixth consecutive time. Just like in the September meeting, the decision was not unanimous, with two board members calling for a 0.25% rate hike. The second 7-2 vote in a row highlights the ongoing split among the committee members. The board reiterated its usual view that they will raise the interest rate if the economy and prices perform in line with the bank’s forecasts. In addition, and despite inflation remaining above target for more than 3.5 years now, they stuck to their view that underlying inflation will meet the 2% goal in the second half of the bank’s three-year projection period, which ends in March 2028. The BoJ’s three-year forecasts for GDP growth and inflation were broadly unchanged with FY2025 GDP growth upgraded slightly to 0.7% from 0.6%, citing more “accommodative financial conditions”. The report maintained FY2026 and FY2027 GDP growth at 0.7% and 1.0%, respectively, with core CPI inflation expected to moderate from 2.7% in FY2025 to 1.8% in FY2026. The report also discussed resilient private consumption and high corporate profits in Japan, but highlighted trade disputes as a major source of risk for the future. Prime Minister Takaichi recently vowed a “new golden age” for US-Japanese relations after meeting with President Trump, with the two signing a trade deal that is expected to reduce trade uncertainty between the two countries.
GCC: Most central banks follow the US Fed in cutting benchmark rates by 25 bps. All GCC central banks except the Central Bank of Kuwait (CBK) followed the US Fed in cutting benchmark interest rates by 25 bps for the second time this year. The Saudi Central Bank reduced its repo and reverse repo rate to 4.5% and 4%, respectively. The Central Bank of the UAE cut the base rate on the overnight deposit facility by 25 bps to 3.9%, the Central Bank of Bahrain lowered its overnight deposit rate by 25 bps to 4.5%, the Qatar Central Bank matched with reductions to its deposit (4.1%), lending (4.6%) and repurchase rates (4.35%) and finally the Central Bank of Oman lowered its repurchase rate to 4.5%. In contrast, the CBK, which pegs the dinar to a basket of currencies rather than exclusively to the US dollar, kept its discount rate on hold at 3.75%. The CBK explained in its communique that local macroeconomic and financial conditions supported holding rates steady at this juncture.
Kuwait: Government advances housing reform with central bank-led mortgage framework. The government has tasked the central bank with formulating the regulatory framework and executive guidelines for implementing the mortgage law upon receiving the final draft law, considering minimal credit risks and individuals’ financial solvency standards. The central bank will define key parameters including maximum loan amounts, eligibility criteria, loan-to-value ratios, repayment terms of up to 25 years, and robust collateral systems to safeguard both lenders and borrowers, according to Al-Qabas newspaper. The new mortgage law should open the door for local banks to offer structured housing finance products while reducing the burden on Kuwait Credit Bank and the Public Authority for Housing Welfare. The law is expected to stimulate the residential real estate market, reduce pressure on public housing programs, and enhance private sector participation in housing finance while supporting broader economic activity across banking, construction, and investment segments.
Egypt: MoF pushes for new tax reforms aligned with broader fiscal commitments. The Ministry of Finance is considering introducing a flat sales tax of 4–5% on sales from free zones within the local market. The move aims to ensure fair competition between firms operating domestically and those in free zones that sell more than 20% of their output in Egypt. Free zone licenses were primarily designed for export-oriented activities, and the expansion of domestic sales has prompted a need to adjust tax regulations to maintain a level playing field. This initiative forms part of Egypt’s broader tax policy reform, which the IMF sees as imperative for balancing the objectives of boosting government revenues and maintaining an attractive investment climate. This coincides with the parliament’s approval of the €4bn second phase of the EU Macroeconomic Support Mechanism, signed last week. Together, these measures underscore Egypt’s commitment to fiscal reform and sustainable economic restructuring.
Saudi Arabia: PIF signals pivot in investment strategy. The Public Investment Fund (PIF) is shifting its investment strategy away from large-scale real estate megaprojects, and more towards high-impact sectors such as logistics, mining, tourism, AI and data centers, according to a media report. The strategic pivot is part of a broader effort to reduce government and PIF spending while increasing private sector participation. The shift comes amid reduced fiscal space and tighter domestic credit conditions, with the latter driving increased interest in non-bank private credit from foreign corporations. According to investment minister Khalid Al-Falih, many of the PIF’s earlier projects have matured, making it an opportune time to transfer assets to the private sector. Projects like Red Sea, Diriyah Gate, and Qiddiya were highlighted as examples of developments that are now operational or nearing completion. The move away from capital-intensive giga-projects towards other strategic sectors may help to accelerate the diversification process, lift market-driven growth and FDI, and support fiscal sustainability. As the PIFs current five-year strategy draws to a close, an updated strategy is due to be unveiled over the coming weeks which we expect will shed more light on the Kingdom’s future investment stance.