Written by Haider Saleem
Financial and Political Analyst | LinkedIn / X

Date: May 9, 2025

Markets, inflation, and halal investment decisions all hinge on a few words from central banks. The U.S. Federal Reserve’s May 2025 meeting delivered those carefully, keeping rates steady amid uncertainty.

But what does that mean for Muslim investors across the world?

On 7 May 2025, the Federal Reserve – central bank of the United States – announced that it would leave interest rates unchanged at 4.25%–4.5%. This marks the third consecutive meeting with no rate change, suggesting that policymakers are hitting “pause” amid economic unpredictability.

For Muslim investors looking to protect and grow their wealth in a halal manner, understanding these developments is more than academic – it can directly influence sukuk yields, equity markets, gold, and broader economic sentiment.

This article explores:

1. What the Fed said at its May 2025 meeting.
2. Why tariffs are complicating interest rate decisions.
3. How other global central banks are responding.
4. What this means for halal asset classes.
5. The risks of inflation, recession, and stagflation.
6. Practical takeaways for Muslim investors.

What Did the Fed Say?

Federal Reserve Chair Jerome Powell was unusually candid at the May press conference. He acknowledged that President Trump’s sweeping tariff policies – especially 10% blanket tariffs and 145% duties on Chinese imports – have created “so much uncertainty” that the central bank is unsure how to proceed. These tariffs have raised concerns of higher prices (inflation), lower growth, and increased unemployment – all while the Fed is trying to guide the U.S. economy toward a soft landing.

Instead of raising or lowering rates, the Fed chose to “wait and see,” leaving borrowing costs where they are. Powell emphasized the need for patience:

“We don’t have to be in a hurry… the economy has been resilient.”

Why the Tariffs Complicate Monetary Policy?

In normal times, central banks adjust interest rates based on clear indicators: inflation, employment, and growth. But today’s economic environment is clouded by trade policies that don’t follow predictable rules.

Tariffs on foreign goods raise the cost of imports, which can push up consumer prices. At the same time, these policies hurt global supply chains, leading to reduced trade, falling company profits, and potential job losses.

As Powell put it:

“If the large increases in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment.”

That unusual mix – higher inflation and weaker growth – creates a dilemma. Typically, you’d raise rates to cool inflation or cut them to support growth. But when both happen at once, the best path forward becomes unclear.

How Other Central Banks Are Responding?

The Federal Reserve is not alone in navigating this complex terrain. The Bank of England cut interest rates by 25 basis points to 4.25% on 8 May, citing similar trade-related risks to economic growth. However, the decision was split, with some members wanting no change and others pushing for a deeper cut.

This global divergence reflects a world in flux. While U.S. monetary policy holds steady, other regions may ease financial conditions sooner, particularly if tariffs weigh more heavily on their export sectors.

For Muslim investors in countries like Malaysia, the UAE, or Turkey, where local central banks often take cues from U.S. monetary trends, this mixed picture suggests it’s important to watch not just domestic policy, but also Washington’s moves.

What This Means for Halal Investment Assets?

Interest rate decisions ripple through all asset classes—but not equally. Here’s how some common halal asset types tend to respond:

Sukuk (Islamic bonds)

Prices generally fall when rates rise and increase when rates fall. With rates on hold, sukuk yields may remain stable, but volatility is still a factor.

Gold

· Often seen as a halal hedge against uncertainty. Gold recently declined as rate expectations shifted, but may rise again if inflation fears return.

Shariah-Compliant Stocks (Tech & Industrials)

· These sectors are sensitive to rate changes. Tech stocks, in particular, face valuation pressure when borrowing costs are high.

Halal REITs

· With steady or falling rates, real estate investment trusts may regain attractiveness for income-seeking halal investors.

For more on gold’s role, see Musaffa’s recent article: “Beyond Borders: Finding Halal Profit Opportunities in Global Markets.”
To learn how to adjust portfolios in times like this, read: “15-Minute Portfolio Checkup: Rebalance Your Halal Investments Today.”

Inflation, Recession, or Both?

One reason the Fed isn’t rushing into rate cuts is that inflation is still above its target, even if it has come down since early 2024. At the same time, early 2025 GDP data showed a contraction, which some analysts attributed to companies front-loading imports before tariffs took effect.

This scenario – where inflation sticks and growth slips – is called “stagflation.” While we are not there yet, it remains a risk.

For Muslim investors, stagflation poses a unique challenge: conventional inflation-fighting tools like interest-bearing bonds are off-limits, and equity returns may lag. Halal strategies that emphasize real assets (e.g., gold, commodities, Shariah-compliant infrastructure plays) may offer partial relief, depending on the trajectory of rates and global trade flows.

So What Can Muslim Investors Do?

While every investor’s situation is different, here are some general considerations for halal portfolios in the current climate:

1. Stay diversified

A mix of sukuk, gold, halal equities, and REITs may cushion volatility better than concentrated positions.

2. Watch debt ratios

Companies with high leverage may breach Shariah thresholds if rising costs or falling earnings inflate their ratios.

3. Track trade-exposed sectors

Halal stocks in export-heavy industries could face headwinds if tariffs escalate further.

4. Don’t rush into moves

With the Fed in a “holding pattern,” now may be a time to monitor rather than act impulsively.

Musaffa’s stock screening and news tools can support your understanding of how global macro changes impact halal investment opportunities.

Conclusion

The Federal Reserve’s May decision may look uneventful, but for Muslim investors, it speaks volumes. With economic uncertainty growing, a cautious, diversified, and Shariah-aligned approach remains the best strategy.

Sources:

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Federal Reserve’s May Meeting: What It Means for Muslim Investors