Allianz Investment: Expects the Federal Reserve to maintain the benchmark interest rate in June and possibly cut rates twice throughout the year
Allianz Investment's Chief Investment Officer for Public Markets, Michael Krautzberger, expects the Federal Reserve to maintain the benchmark interest rate at this week's meeting, with a target range of 4.25% to 4.5%. The market anticipates that the Federal Reserve may cut rates twice this year, provided that tariffs exert pressure on domestic demand. Although the stock market has recovered from its initial decline, global economic growth still faces downside risks, and the market may be overly optimistic. The current macro and policy environment is conducive to adopting a steepening yield curve strategy
According to the Zhitong Finance APP, Michael Krautzberger, Chief Investment Officer of Allianz Investment's Public Market, expects that the Federal Reserve will maintain interest rates at its meeting this week, keeping the federal funds rate target range between 4.25% and 4.5%, marking the fourth consecutive meeting of inaction. In the foreign exchange market, he believes that the dollar is facing structural resistance, thus maintaining a bearish view on the dollar in the portfolio.
Michael Krautzberger pointed out that since the last interest rate meeting in early May, the Trump administration's rhetoric on tariffs has significantly cooled, announcing a 90-day suspension of reciprocal tariffs while retaining a minimum tax rate of 10% until early July. The stock and credit markets have fully recovered from the initial declines following the "Tariff Liberation Day," and financial conditions have also eased, reflecting market expectations that the impact of tariff policies on corporate fundamentals has weakened and will not cause significant damage to corporate fundamentals. However, given the downside risks to economic growth in the U.S. and globally, the market may be somewhat complacent, and the Federal Reserve may maintain a wait-and-see stance in the short term, continuously assessing the actual impact of tariffs on economic activity.
The bank agrees with the short-term interest rate market's expectation of inaction at the June meeting. Current market pricing indicates that the Federal Reserve may cut rates twice this year, provided that tariffs exert pressure on U.S. domestic demand, leading to a slowdown in the cycle. If the 90-day tariff suspension period ends in July and the global trade war escalates further, or if inflation risks ease, the market's expectations for rate cuts may be brought forward again. Additionally, the bank tends to believe that the current macro and policy environment is conducive to adopting a steepening strategy for the U.S. yield curve
