Allianz Global Investors: Expect the Fed to Hold Steady in March, Uncertainty Boosts Rate Cut Expectations

Allianz Global Fixed Income's chief investment officer Michael Krautzberger commented ahead of the March 19 Federal Reserve meeting, expecting the central bank to hold rates steady at its meeting, keeping the federal funds rate target range unchanged at 4.25%-4.50% for a second consecutive meeting.

Allianz said the market's view of the US economic outlook in 2025 had changed since the start of the year due to uncertainty over the new Trump administration's trade and fiscal policies.

US economic data has cooled, and the outlook for consumer demand and business confidence has dimmed under the weight of policy uncertainty. US equity and credit markets have been weak in this environment.

Chairman Powell reiterated his belief that "the US economy is still in good shape" in recent comments, but confidence in financial markets has been lacking.

Allianz said at the start of the year the market expected the Fed to cut rates only once by 2025; but in recent weeks the market has shifted to expect three rate cuts. The yield on two-year US Treasury notes is 4 per cent, back to levels seen before the US election in November.

Allianz said in the current macro and policy environment, the best investment approach was through a steepening strategy. However, given recent market volatility, it was more inclined to trade around structural positions.