Commerzbank's Dr. Jörg Krämer and Bernd Weidensteiner expects the Federal Reserve (Fed) to keep the federal funds target range at 3.50%–3.75% at the upcoming meeting, resisting political pressure for cuts as inflation remains above target and oil-driven price shocks persist. They project rate reductions toward year-end as inflation eases, with the US Dollar (USD) seen weakening over time on excessive United States (US) easing and concerns about Fed independence.

Fed holds fire before later easing cycle

"The Fed is likely to keep its key interest rates unchanged for the third consecutive time. After all, the inflation rate has been above target for five years, and the conflict in the Middle East is driving prices even higher. As a result, inflation expectations are probably no longer as firmly anchored as they once were."

"The Fed is therefore keen to keep inflation expectations anchored. A rate cut in this environment would be counterproductive."

"Despite ongoing political pressure, the Fed is not expected to change its key interest rate at next week’s meeting. At most, Governor Miran is likely to vote for a rate cut. The target range for the federal funds rate would thus remain at 3.50%–3.75%."

"The Fed is under considerable political pressure to cut interest rates further. We expect it to resume rate cuts toward the end of the year, as inflation should have eased somewhat by then."

"The dollar is likely to be under pressure again after the end of the war with Iran because of pronounced and ultimately excessive US interest rate cuts, which have a lot to do with the Federal Reserve's dwindling independence."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)