BOC HONG KONG: It is highly likely that the Federal Reserve will maintain interest rates this month
Zhang Shiqi, head of the Wealth Strategy and Analysis Department at BOC HONG KONG, expects a high probability that the Federal Reserve will maintain interest rates this month, as it needs to assess the impact of new government policies on the economy. The market generally believes that interest rate cuts are the major direction for this year, and with U.S. stock valuations being relatively high, investors should observe patiently. The mainland stock market offers a higher cost-performance ratio and is expected to attract more medium- to long-term funds. Gold is expected to continue rising due to central bank purchases and safe-haven demand, but short-term fluctuations may occur
According to the Zhitong Finance APP, the Federal Reserve will hold its first interest rate meeting of the year. Zhang Shiqi, head of Wealth Strategy and Analysis at BOC HONG KONG (02388), believes that the probability of maintaining interest rates unchanged is relatively high. As new government policies in the United States are gradually introduced, it is believed that the Federal Reserve needs time to assess their impact on the future economy in order to determine the path for interest rate cuts. U.S. employment data shows moderate economic growth, while core inflation has fallen for the first time in nearly six months. It is expected that interest rate cuts will still be the major direction this year. According to current interest rate futures, the market expects a higher chance of the Federal Reserve cutting rates by mid-year. Therefore, the focus of this month's interest rate meeting will be on the Federal Reserve Chairman's assessment of the recent policies' impact on the economy.
The market generally believes that the new U.S. government's import tariff-related policies are relatively moderate, coupled with the government's plan to increase investment in artificial intelligence infrastructure, which supports the recent optimism in the market, leading to new highs in the S&P 500. However, Zhang Shiqi believes that U.S. stock valuations are currently high, and if the subsequent policy measures exceed market expectations, stock market volatility may increase. Therefore, investors should patiently observe and strategically allocate their investments. If related policies lead to a potential rebound in inflation, it could affect the Federal Reserve's expectations for the magnitude of interest rate cuts, which may lead to a temporary rebound in U.S. Treasury yields that are currently on a downward trend.
Regarding the mainland stock market, recent measures have been introduced to promote medium- to long-term capital inflow into the market. As these policies continue to be implemented, it is expected to inject more vitality into the capital market, making the investment value advantage of mainland A-shares more apparent. Zhang Shiqi pointed out that, whether compared horizontally with other stock markets or against its own historical performance, the mainland stock market has a high cost-performance ratio. At the same time, the improvement in corporate earnings in the mainland is expected to drive an increase in stock market valuations, making medium- to long-term allocation in the mainland stock market a prevailing trend.
In terms of gold allocation, benefiting from central bank purchases and safe-haven demand, Zhang Shiqi expects the trend of gold to remain upward this year, with the potential to continue reaching historical highs. However, when market expectations for Federal Reserve interest rate cuts weaken, it may lead to short-term fluctuations in gold prices during the upward trend, providing allocation opportunities for investors