Citadel Says the U.S. Fed Will Raise Rates, While Citi Says It Will Cut Them

[Financial News] Major Wall Street financial firms are divided over the future direction of monetary policy at the U.S. Federal Reserve System (Fed).
On the 16th local time, Andrew Hollenhorst, Citigroup's chief U.S. analyst, said that the recent drop in international oil prices, following the announcement of a U.S.-Iran memorandum of understanding (MOU), would support a rate cut. Brent Crude Oil fell below $80 per barrel that day for the first time in three months.
Hollenhorst said the outcome gives Kevin Warsh, chairman of the Fed, much more flexibility. He added that "inflationary pressure has now shifted into deflationary pressure."
He predicted that no immediate easing stance would emerge at the Federal Open Market Committee (FOMC) meeting on the 16th and 17th. Still, he maintained his earlier forecast that the Fed would deliver three rate cuts starting in September, assuming the U.S. labor market weakens over the next few months. He also added that if employment remains stronger than expected, the timing of rate cuts could be pushed back to next year.
By contrast, Frank Flight, head of macro strategy at Citadel Securities, said in a report that "the Fed is increasingly likely to begin a rate-hike cycle as early as September." He explained that although international oil prices are falling after the recent provisional peace agreement between the U.S. and Iran, price pressures accumulated during the war have become deeply embedded across the economy. He added that "a combination of accommodative financial conditions, persistent supply chain disruptions, a reacceleration in the labor market, and a surge in artificial intelligence (AI) investment is sustaining inflationary pressure."
Flight in particular expected Warsh to send a far more hawkish signal than the market anticipates at the first FOMC meeting he will chair since taking office. He argued that "the risk of the Fed raising rates three times starting in September has increased," presenting a more aggressive scenario than the current market view. He also said that "Warsh will choose to preserve the Fed's credibility in fighting inflation rather than validate the market's dovish expectations."
He also pointed to faster wage growth, especially in cyclical sectors, and noted that many components of the Consumer Price Index (CPI) are already showing annual gains of more than 3% as signs of a renewed acceleration in inflation.
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