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(Bloomberg) — Citigroup Inc.’s Andrew Hollenhorst said the Federal Reserve will cut interest rates this year as the labor market weakens and oil prices ease, even as bond traders and his colleagues across Wall Street wager on hikes.
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A decline in energy prices this week as the US and Iran tout a deal to reopen the Strait of Hormuz and extend a ceasefire will give Fed Chairman Kevin Warsh an opening to make a dovish case at this week’s policy meeting, according to the bank’s chief US economist. Brent oil fell below $80 a barrel for the first time in more than three months on Tuesday.
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“It gives him a lot more flexibility,” Hollenhorst said on Bloomberg Television. “This inflationary pressure has now reversed and become a deflationary pressure.”
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Hollenhorst expects central bank officials to remove a reference to an easing bias from their policy statement and publish a forecast that shows no reductions this year. Citi’s base case is still for three cuts this year, starting in September, assuming a weakening labor market over the next several months. Without that, he said cuts could be pushed out to 2027.
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Expectations for a cut this year have become increasingly uncommon in the wake of the war in Iran amid higher oil prices, strong job growth and record highs in US equity benchmarks. Traders who’d been betting on multiple cuts before the war have since abandoned those calls to see a roughly 75% chance of a hike before the end of 2026.
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