Ahmad Azzam, Head of Research at the Equity Group, said that recent US inflation data has reduced the likelihood of the Federal Reserve raising interest rates at its current meeting, but he does not rule out a single increase before the end of the year if inflationary pressures persist.

In an interview with Al Arabiya Business, Azzam explained that the Fed is currently adopting a wait-and-see approach, relying on economic data before making any monetary policy decision, noting that the latest inflation reading was supported by a decline in energy prices, a factor that may be temporary amid the return of geopolitical tensions and rising oil prices.

Fed's Beige Book report notes continued inflation concerns ahead of July meeting

He added that continued unrest in the Middle East and rising energy prices could keep US inflation rates within a range of 3% to 4.5% until the end of the year, which could keep inflation above the Fed's target.

He pointed out that concerns are not limited to monetary policy this year but extend to 2027, as the Fed may be forced to completely change its stance if the economy slows or the labor market weakens, which could push it to shift toward cutting interest rates after a phase of monetary tightening.

Regarding the US dollar, Azzam explained that the US currency could face pressure if markets rule out any additional rate hikes and begin pricing in rate cuts in 2027, especially with the possibility of continued monetary tightening in other economies such as Japan, a potential rate hike in Britain, along with the changing interest rate gap with Europe.

He added that the dollar will remain supported, on the other hand, by safe-haven factors resulting from geopolitical tensions, which may limit its losses despite changing monetary policy expectations.

Azzam confirmed that US economic growth remains solid, supported by investments related to artificial intelligence, but he warned that any slowdown in spending on this sector could negatively impact the pace of growth and increase pressure on central banks to ease monetary policy in 2027.

He noted that major economies, including Europe and Britain, are recording weak growth rates close to zero, making the balancing act between fighting inflation and maintaining economic growth the main challenge for central banks in the coming period.

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