Citigroup Says Fed Rate Cut in July Still ‘Not a Done Deal’

(Bloomberg) -- Citigroup Inc. economists are growing more confident in their forecast for the Federal Reserve to leave interest rates unchanged this month, a call that leaves them at odds with many investors and fellow analysts.

The nation’s 224,000 surge in payrolls in June and recent de-escalation of trade tensions between the U.S. and China are reasons to think the Fed may take a “wait and see” approach before reducing their benchmark when officials gather on July 31, economists Andrew Hollenhorst and Veronica Clark wrote in a report to clients on Friday.

With policy makers set to enter their “blackout” period, the Citigroup economists said this week marks to last opportunity for them to shift market expectations. Chairman Jerome Powell addresses lawmakers on Wednesday and Thursday.

“We do not expect any statements that are too conclusive, but we may get a sense of which options remain on the table as the committee prepares to debate action at their July meeting,” said Hollenhorst and Clark.

Upcoming data releases will also be important, they said. This week will see the publication of the consumer price index, which the Citi economists expect to keep the “lack of inflationary pressure narrative in place.” Reports on retail sales and business investment will also be worth monitoring.

Bloomberg Economics also expects the Fed to hold fire this month.

“While the Fed dropped ‘patient’ from its policy guidance at its June meeting, the strength in the pace of hiring will enable the FOMC to delay until September the onset of a mini-easing cycle,” Bloomberg economists Carl Riccadonna and Yelena Shulyatyeva wrote in their latest report.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editors responsible for this story: Stephanie Flanders at flanders@bloomberg.net, David Goodman, Brian Swint

©2019 Bloomberg L.P.