Allianz Investment: Expects the Fed to remain steady this week, with the dollar facing structural resistance
Michael Krautzberger, Chief Investment Officer of Global Fixed Income at Allianz Investment, stated that the Federal Reserve is expected to maintain the federal funds rate at 4.25% to 4.5% during the July meeting, marking the fifth consecutive time it has held steady. Despite facing pressure to cut rates, the current economic growth and inflation environment provide the Federal Reserve with room to wait and see. Allianz Investment believes that inflation data in the coming weeks will be a key factor and points out that the dollar faces structural resistance, which strengthens confidence in shorting the dollar
According to the Zhitong Finance APP, Michael Krautzberger, Chief Investment Officer of Global Fixed Income at Allianz Investment, stated that despite political pressure for immediate interest rate cuts, the Federal Reserve is expected to maintain the federal funds rate at 4.25% to 4.5% after the July meeting, marking the fifth consecutive time it has held steady.
Krautzberger noted that the current economic growth and inflation environment provide room for the Federal Reserve to adopt a wait-and-see approach and maintain patience. However, the pressure for rate cuts from the Trump administration and some Federal Reserve governors is intensifying. Since the June meeting, inflationary pressures triggered by tariffs have begun to emerge, and U.S. consumer demand continues to slow. Nevertheless, loose fiscal conditions have somewhat alleviated the downside risks to the U.S. economy.
Allianz Investment believes that the Federal Reserve is likely to maintain a cautious stance at the July meeting, continuing to observe the actual impact of tariff measures on economic activity and inflation. The short-term interest rate market generally shares this view, with expectations for a rate cut in July remaining low. Looking ahead to the July meeting, the market currently only anticipates two rate cuts within the year. Allianz Investment believes that inflation data released in the coming weeks will be a key variable. However, if the weakness in consumer demand and the labor market exceeds expectations, the pressure for rate cuts from the political level may significantly intensify before the September Federal Reserve meeting.
From an investment strategy perspective, Allianz Investment believes that the current macroeconomic and policy environment is conducive to deploying investments that steepen the U.S. yield curve. In the money market, the U.S. dollar is facing structural resistance, further strengthening the bank's confidence in shorting the dollar against a basket of currencies
