US Federal Reserve: How does its decision affect the riyal, oil, and Saudi stocks?

What does the upcoming Fed meeting mean for your portfolio?

Are you following the US Federal Reserve and confused about why these decisions matter to you in Saudi Arabia? Are you wondering how its upcoming meeting on October 29 will affect your Tadawul shares or oil prices? You're not alone. Many are wondering about the relationship between Washington's decisions and their portfolios in Riyadh.

In this comprehensive guide, we translate the complexities of monetary policy into clear advice. You'll understand exactly why the SAMA follows the Fed's lead, and what it means for the Riyal's correlation with the dollar. More importantly, you'll get a detailed analysis of the impact of the expected rate cut on the banking and real estate sectors, and how you can prepare your investment strategy in gold, sukuk, and stocks to be ready.

US Federal Reserve: How does its next decision affect your Saudi Arabia portfolio? (A comprehensive guide)

The world, from Washington to Riyadh, awaits the next meeting Federal Reserve. For many in Saudi Arabia, this is not just economic news, but a pivotal event that could determine the course of their investments and finances for the coming months. Whether you are invested in the Tadawul stock market, own real estate, or even save in Saudi Riyals, the decisions of this powerful central bank have a direct and profound impact on your portfolio. That's because The close correlation between the Saudi riyal and the U.S. dollarand the complex relationship between interest rates and oil prices. In this comprehensive and up-to-date guide, we dive deep into the workings of the Fed, analyze how its next decision (expected on October 29, 2025) will concretely impact your financial strategy in Saudi Arabia, and provide clear insights to be prepared for any scenario.

What is the U.S. Federal Reserve and why does one decision shake the world's markets?

Simply put, the Fed is Central Banking System of the United States of America. Imagine a "bank of banks" in the world's largest economy. Founded in 1913, its primary mission is not to make a profit, but to ensure the stability of the U.S. economy. It accomplishes this through two main goals known as "Dual Mandate:

1. Maximize recruitment: Making sure that everyone who wants a job can find one.
2. Maintain price stability: Controlling inflation and keeping it at a healthy level (currently targeting 2%).

Why does a single decision from him shake the world's markets? Because his main tool for achieving these two goals is "Federal Funds Rate". This is the interest rate at which banks lend to each other overnight. When the Fed changes this rate, it changes the cost of money in the entire economy. More importantly, the The U.S. dollar is the world's reserve currencyThe most important commodities (such as oil) are priced in it and countries use it for trade and reserves. Therefore, when the "dollar rate" (i.e. interest on the dollar) changes, the effects travel like waves across every financial market on earth, from Tokyo to London, all the way to Riyadh.

Why Saudi investors can't sleep a wink: The mystery of the Fed and the Riyal's peg to the dollar

For an investor in Saudi Arabia, the relationship with the U.S. Federal Reserve is not indirect, but direct and inevitable. The secret lies in the Kingdom's well-established monetary policy: The Saudi riyal is pegged to the US dollar (Dollar Peg) at a fixed exchange rate of 3.75 riyals per dollar.

This peg, masterfully managed by the Saudi Arabian Central Bank (SAMA), provides tremendous stability to the Saudi economy and protects it from extreme currency fluctuations. But to maintain this peg, SAMA must ensure that the rial remains as attractive as the dollar.

This means that when the Fed decides to raise interest rates on the dollar to attract capital and fight inflation, SAMA is often forced to follow suit and raise domestic interest rates (such as repo and reverse repo rates) almost immediately. Otherwise, money would flow from the rial (low-interest) to the dollar (high-interest), creating tremendous pressure that could break the peg.

Therefore, every word uttered by Fed Chairman Jerome Powell translates directly into the cost of mortgages, corporate financing, and bank deposit yields within the country.

The latest Fed news: Current interest rate and expectations for the next meeting (live update)

In the investment world, timing is everything. Knowing where we stand today and what to expect tomorrow is key to making the right decisions. This section is your quick summary of the most important numbers and dates related to the US Federal Reserve. (Note: Data is up to date as of October 22, 2025).

How much is the Fed interest rate today? (Last Updated)

The Federal Reserve sets a "target range" for the Federal Funds Rate.

As of the last update (after the September 17, 2025 meeting), the current target range for the Fed Funds Rate is: 4.00% - 4.25%.

This is the reference rate that affects everything from credit cards to car loans in America, and it's the number that the Saudi Central Bank (SAMA) follows closely to set its own interest rates on the Saudi Riyal.

The next Fed meeting is coming up: What is the market waiting for?

Major interest rate decisions are made during meetings of the Federal Open Market Committee (FOMC), which are held eight times a year (approximately every six weeks).

The next meeting to which all eyes are on will take place next week, on Wednesday, October 29, 2025.

The market is awaiting this meeting with cautious optimism. Advanced financial instruments, such as Fed funds futures, indicate a very high probability (above 98%) that the Fed will make an additional 0.25 percentage point (25 basis points) rate cut, bringing the range to 3.75% - 4.00%. This strong expectation comes after the release of US economic data that showed a slowdown in the labor market and less pressure from the inflation side, giving the Fed the green light to support economic growth.

Summary of the Fed's latest decision (September 2025): What does a rate cut mean for you as an investor?

At its last meeting on September 17, 2025, the US Federal Reserve (Fed) took an important step that marks a shift in its long-standing tight monetary policy. The Committee decided to cut the key interest rate by 0.25 percentage points (25 basis points), moving it from a range of 4.25% - 4.50% to the current range of 4.00% - 4.25%.

This was the first rate cut in 2025, a decision long awaited by investors.

What does this mean for you as an investor? This decision was a clear signal from the Fed that the battle against hyperinflation is almost over, and that the focus is shifting towards supporting economic growth that has shown signs of slowing down. For the Saudi market, this means lower borrowing costs for businesses and individuals (due to SAMA following suit), which could stimulate consumer spending, support sectors like real estate, and ease pressure on companies that rely on debt to fund their growth.

How does the Fed decide? A look inside the mind of Jerome Powell and his decision-making process

To understand market movements, it's not enough to know "what" the Fed decided, it's more important to understand "why". The decisions of the Federal Open Market Committee (FOMC), led by Chairman Jerome Powell, are not random, but the result of a careful analysis of a vast amount of economic data to achieve a delicate balance.

Key indicators that move the Fed: Your guide to reading inflation and unemployment data

The Fed's decision is mainly based on the "dual mandate": Price stability and maximum employment. Therefore, there are three types of data that Powell and his team are watching like hawks:

1. Inflation data: This is the most important indicator. The Fed is watching indicators such as Consumer Price Index (CPI) and the personal consumption expenditure (PCE) index. Its official goal is to keep inflation at 2%. If the numbers are much higher than 2%, it tends to Interest rate hike (emphasis added) to rein in prices. If the numbers are slowing down and getting closer to the target (as has been the case recently), it feels comfortable to consider a rate cut.
2. Labor market data (unemployment): The second indicator is the strength of the labor market. This is measured by Unemployment rate And a number New functions added monthly (monthly employment report). A very strong labor market (very low unemployment) may lead to higher wages and thus inflation, prompting the Fed to tighten. A weak labor market (high unemployment, sluggish hiring) gives the Fed a strong reason to To lower the interest To stimulate the economy.
3. Economic growth data (GDP): Although not a formal part of the mandate, the Gross Domestic Product (GDP) It gives an overall picture of the health of the economy. Very strong growth can fuel inflation, while weak growth or stagnation pushes the Fed more aggressively toward lowering interest rates.

Fed tools: Not just the interest rate... What is QE and QT?

The interest rate is the most well-known tool, but the Fed has other powerful tools in its toolbox, especially in exceptional times:

• Quantitative Easing (QE - Quantitative Easing): You may have heard this term during the 2008 crisis or the 2020 pandemic. When the interest rate is close to zero and the economy still needs a boost, the Fed begins to Buying financial assets (such as Treasuries) from the markets. This injects billions of dollars (liquidity) into the financial system and lowers long-term interest rates, making borrowing for investment and home buying very cheap.
• QT - Quantitative Tightening: This is the opposite of quantitative easing, which is what the Fed has been doing until recently. When it wants to pull excess liquidity out of the economy to fight inflation, it Reduces the size of its balance sheet by stopping reinvesting money from maturing bonds. This reduces liquidity in the markets and helps raise long-term interest rates, which contributes to slowing the economy.

How to Read Powell's Remarks: The Difference Between Hawkish and Dovish

In the financial world, the Fed chair's words are as important as his decisions. Markets analyze every comma and tone of voice in his press conference. As a Saudi investor, you should understand these two terms to describe the Fed's tone:

• "Hawkish" (Hawkish - hawkish): When the tone of Powell and his team is so concerned about Inflation high. They use strong language about the need to Interest rate hikes Or keep them high for "longer" to rein in prices, even if it means slowing economic growth. This stance is negative for equity markets (because it increases the cost of borrowing) and positive for the dollar.
• "Dovish" (Dovish - permissive): When the accent is more concerned about Weak economic growth or high unemployment. They use softer language about the possibility of Cutting interest rates Or stop raising them to support the economy. This stance is positive for stock markets (because it makes money cheaper) and negative for the dollar. (The current stance is heavily skewed towards "dovish").

The direct impact of the Fed's decisions: What happens to the rial, Tadawul, and oil?

Now we get to the most important part: How does a decision made in Washington translate into profits or losses in your investment account in Riyadh or Jeddah? The impact is direct and touches every corner of the Saudi economy.

The Fed and SAMA: Why does the Saudi central bank always follow the Fed's lead?

As we explained earlier, the reason is the Riyal-Dollar peg. This policy is the cornerstone of monetary stability in the Kingdom. To keep the exchange rate steady at 3.75 riyals to the dollar, the Saudi Central Bank (SAMA) must ensure that interest on the riyal remains in line with interest on the dollar.

When the Fed raises interest rates, SAMA follows suit. This directly drives up the cost of real estate, personal, and corporate loans in Saudi Arabia.

When the Fed cuts rates (as it did in September, and as expected on October 29), SAMA follows with a similar cut. This makes borrowing cheaper, which can spur companies to expand and individuals to spend, which supports sectors like retail and real estate. This is an almost inevitable relationship that every investor should understand.

Is the Fed controlling oil prices? The hidden relationship between interest rates, the dollar and oil

The Fed doesn't set the price of a barrel of oil (that depends mainly on OPEC+ supply and global demand), but it strongly influences it through two main channels:

1. US Dollar Channel: Oil is priced in dollars. When the Fed raises interest rates. Dollar exchange rate rises against other currencies (such as the euro and yen). This makes oil More expensive on countries that buy oil in their local currencies, which could reduce global demand and put pressure on oil prices to fall. And vice versa. (Expected) Interest Rate Cut Weakens Dollarmaking oil relatively cheaper for global buyers, which could stimulate demand and drive up its price.
2. Global Demand Channel: The goal of the interest rate hike is to Slowing down the economy To fight inflation. A slowing economy means slower factories, less transportation, and therefore Lower demand for energy (oil). Therefore, a hawkish policy is bad for oil. Loose (dovish) interest rate cuts (as expected) are meant to stimulate economic growth, which means more demand for oil, which is Positive for oil prices and the Saudi economy as a whole.

Sector analysis: Who wins and who loses from the interest rate decision? (Banks, Real Estate, Growth)

The Fed's decisions (reflected by SAMA) do not affect all sectors of the Saudi stock market (Tadawul) in the same way. There are clear winners and losers from every interest cycle:

• The winners of the interest rate cut:
  • The real estate sector and real estate development companies: This sector is the biggest beneficiary. Lower interest rates mean lower cost of mortgage loans for individuals, freeing up pent-up demand for home purchases and boosting developer profits.
  • Growth sectors (such as technology and companies with high valuations): These companies often rely on borrowing to finance their rapid growth. Lower interest rates reduce their debt costs and increase their investment attractiveness.
  • Highly indebted companies: Any company carrying large debts (especially variable rate ones) will breathe a sigh of relief, as their debt service costs will decrease, improving their bottom line.
• The losers of (lower) interest rates (or the winners of (higher) interest rates):
  • The banking sector (banks): This sector has been the biggest beneficiary of the Lift Interest. Why? Because banks benefit from a widening "net interest margin" (NIM), the difference between what they pay on deposits and what they earn on loans. When Reduce This margin may shrink slightly, which may put pressure on their profitability compared to the high interest period.

[Comparative table: The impact of a Fed rate hike or cut on your Saudi assets]

To summarize these effects, here's a simplified comparison chart showing how Saudi Arabia's major assets react to the Fed's decisions:

Smart Investor Strategies: How to build your portfolio in Saudi Arabia based on the Fed's decisions?

Knowledge alone is not enough, it must be converted into action. Understanding how the Fed works gives you an advantage to adjust your strategy. You can't control the Fed's decisions, but you can control your response to them.

Proven ways to protect your portfolio from Fed interest rate fluctuations

Risk management is the key to survival and growth in the markets, especially in times of major monetary shifts:

1. Strategic (not random) diversification: That's the golden rule. But in the context of interest, this doesn't just mean buying a lot of stocks. Diversify across sectors that interact differently. With the current interest rate cut outlook, it may be wise to overweight beneficiary sectors (such as real estate or growth) while not neglecting defensive sectors. Also, diversify across assets (stocks, bonds, gold, cash) to absorb shocks.
2. Monitor debt (in your investments): In a course Lift Interest, highly leveraged companies were a big risk. Now, as the Reduce Interest, these companies may become (provided their business models are strong) Investment opportunitybecause their debt burden will decrease. Analyze the balance sheets of the companies you invest in: Are their debts fixed-interest or variable? Lower interest will help those with variable debts faster.
3. Holding liquidity (cash) to seize opportunities: The volatility that follows Fed meetings creates golden opportunities. Sometimes, the decision may be contrary to expectations (e.g. interest rates are held instead of lowered), causing a temporary panic in the market. Holding a percentage of cash gives you strength and flexibility To buy good assets at discounted prices When others sell with fear.

Where are the opportunities? Investing in stocks, gold, or sukuk as interest rates change

Every interest cycle creates new stars. Based on current expectations (the start of an interest rate cut cycle):

• Stocks (beneficiary sectors): As we have already mentioned. Real estate sector And real estate finance companies look very attractive. Well, and Growth sectors that have been negatively impacted by rising interest rates may see a strong comeback. Look for strong companies in these sectors.
• Gold: Gold has historically been considered a safe haven and a hedging tool. But more importantly. Gold thrives when real interest rates fall. With interest rate cuts expected, it becomes less attractive to hold the dollar (because its interest rate falls), which increases the attractiveness of non-interest-bearing gold (the opportunity cost of holding it falls).
• Instruments and bonds: Herein lies a clever opportunity. Sukuk prices move inversely to interest rates. When the Fed was raising interest rates, the prices of older bonds were falling. Now that interest rates have peaked and are starting to fall, the The time is right to "lock in" a high yield by buying long-term instruments. When interest rates actually go down. The price of the instrument will increase that you own (because it carries a higher interest rate than the market), giving you a capital gain in addition to the periodic return.

[Checklist: Is your portfolio ready for the next Fed meeting?]

Use this quick checklist before the next Fed meeting (October 29, 2025) to assess your readiness:

A quick checklist ahead of the next Fed meeting:

• [ ] Do you know the forecast? (Is the market expecting a hike, cut, or stabilization? Current forecast: 0.25% downgrade).
• [ ] Is your portfolio biased by expectations? (Have you overweighted sectors that benefit from interest rate cuts such as real estate and growth?)
• [ ] What if the decision is contrary (confirmation)? (Do you have defensive sectors or liquidity to absorb the shock or exploit the decline?)
• [ ] Have you reviewed the debts of the companies you invest in? (Do you know how an interest rate cut will affect their earnings?)
• [ ] Have you reviewed your other assets? (Have you considered overweighting gold or bonds to take advantage of the interest rate-cutting cycle?)
• [ ] Are your goals long-term? (Remember, don't let a single piece of news, even a big one, change your long-term investment strategy built on sound fundamentals. Use it only for tactical adjustments).

Frequently asked questions: Quick answers to the most important things on your mind about the U.S. Federal Reserve

To solidify understanding, here are quick and straightforward answers to the most common questions investors in Saudi Arabia ask about the Fed and its implications.

Glossary of terms: What does FOMC, Hawkish, and Dovish mean?

• FOMC (Federal Open Market Committee): She is the "mastermind" within the Fed. It consists of 12 members who vote on the interest rate decision at the eight annual meetings.
• Hawkish (hawkish/hardline): A term to describe an attitude that tends to Interest rate hikes Hard to fight inflation, even if it hurts economic growth. Hawks hate inflation.
• Dovish (dovish / permissive): A term to describe an attitude that tends to Cutting interest rates (or stop raising them) to support economic growth and stimulate employment, even if it risks a slight rise in inflation. Doves are afraid of recession.
• Inflation: The rate at which prices of goods and services rise. When it rises, your purchasing power decreases. The Fed's goal is to keep it at 2%.
• Recession: A significant contraction in economic activity that lasts for several months, characterized by high unemployment and low output. The Fed is trying to avoid it by cutting interest rates.

[List the most frequently asked questions about the Fed and its impact on Saudi Arabia]

Q1: I'm a Tadawul-only investor and don't trade dollars, why should I care about the Fed?

A1: You should pay very close attention. Because the Fed's decision affects Tadawul in three major ways:

1. The cost of borrowing: The Saudi Central Bank (SAMA) will follow the Fed's decision, affecting the cost of loans for Tadawul-listed companies, and thus their profits.
2. Sector performance: As we explained, sectors such as banking, real estate and growth are very directly affected by rising or falling interest rates.
3. Oil prices: The Fed's decision affects the strength of the dollar and global demand, two key drivers of oil prices, which in turn is the biggest driver of the Saudi economy and the profits of market giants such as Aramco and SABIC.

Q2: Could the Saudi Central Bank (SAMA) decide not to follow the U.S. Fed?

C2: In theory it is possible, but in practice it is very rare and unlikely under the current policy of pegging the rial to the dollar. To keep the exchange rate fixed at 3.75, the interest rate on the rial must remain close to the interest rate on the dollar. Any significant difference would create an opportunity for speculators to sell the rial and buy the dollar (or vice versa), depleting SAMA's foreign exchange reserves used to defend the peg. Therefore, following the Fed is a strategic necessity to maintain the kingdom's monetary stability.

Q3: Which is better for the Saudi market, raising or lowering interest rates?

A3: This is a complex question and the answer "depends on the cause".

• Raise interest (if due to a strong global economy and strong demand) often coincides with rising oil prices, and this Very positive for Saudi government finances and energy sector profits. But it hurts domestic sectors such as real estate.
• Reducing interest (if due to a weak global economy and fear of recession) may be Negative for oil (due to weak demand). But the interest rate cut Proactive (as is now expected, due to inflation control rather than recession) is Ideal (Goldilocks) ScenarioIt lowers the cost of borrowing domestically and supports the growth and real estate sectors, without necessarily meaning a collapse in oil demand. This is what the Saudi market is currently hoping for.

Conclusion of the guide: How do you prepare for the Fed's decisions?

We now come to the end of our analysis of how the Fed's decisions will affect your investments in Saudi Arabia. To understand the complex landscape, the key points we discussed can be summarized as follows:

• Deterministic relationship: Decisions US Federal Reserve It sets the course for interest rates in Saudi Arabia. Due to the policy of pegging the rial to the dollar (at 3.75), the Saudi Central Bank (SAMA) is forced to follow the Fed's lead almost immediately to keep the peg stable.
• Current projections (October 2025): The market strongly expects the Fed to start a cycle Interest rate cut (starting with the October 29 meeting), driven by slowing inflation and labor market data. This represents a significant shift from the previous monetary tightening (rate hike) environment.
• Disparate asset impact: Interest rate cuts are not positive for everyone. It is expected to support sectors such as Real estate and growth stocks (due to the lower cost of borrowing), and enhance the attractiveness of non-interest bearing assets such as Goldas well as the prices of Instruments Current. On the other hand, this could put some pressure on margins for the banking sector.
• Strategy is more important than prediction: Success lies not in trying to accurately predict the Fed's decision, but in Preparation for possible scenarios. This means building a diversified portfolio, understanding how each asset (stocks, real estate, bonds, gold) will be affected by the new interest rate environment, and managing risk wisely.

Thank you very much for your time and for reading this comprehensive guide to the end. We hope the information provided has helped you untangle the tangled relationship between Washington's decisions and your portfolio in Riyadh, and gives you greater insight and confidence to make informed investment decisions.