Citi Defies Wall Street, Sticks to Forecast of Fed Rate Cuts


Economists at Citigroup Inc(NYSE:C). are diverging from the consensus on Wall Street, maintaining their forecast for Federal Reserve rate cuts despite skepticism from peers at other major banks.

While many banks have revised down their expectations for interest-rate cuts this year after recent inflation data and comments from Fed Chair Jerome Powell, Citigroup’s Andrew Hollenhorst and Veronica Clark remain steadfast in their prediction of five quarter-point cuts in 2024. They argue that the Fed’s cautious stance reflects concerns about potential economic slowdowns and disinflation.

Their outlook contrasts with prevailing market sentiment, where bond yields have risen following last week’s consumer price index report. Derivatives traders are assigning only a small probability to rate cuts in the coming months, questioning whether the Fed will enact any reductions this year.

Citigroup’s economists are closely monitoring upcoming readings of the core personal consumption expenditures index, anticipating a moderation in inflationary pressures. They believe that if the index shows signs of easing price pressures, the Fed may begin gradually lowering policy rates as early as June or July.

Additionally, they suggest that the Fed is inclined to prioritize indications of economic weakness, such as a slowdown in job growth, over continued strength in other economic indicators. This dovish bias within the Fed, they argue, is being underestimated by interest rate markets.

Despite the prevailing skepticism on Wall Street, Citigroup remains firm in its prediction, believing that the Fed’s reaction function is more dovish than currently priced in by markets.

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