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One major bank is holding the line, saying the Fed won't cut rates this year

Key Points
  • "Fed policy – and our call for no cuts in 2019 – remain highly dependent on incoming data over the next few weeks," said Catherine Mann, global chief economist at Citi.
  • Traders interpreted the Fed's dovish tone as a done deal for a July cut, pricing in a 100% chance of at least one reduction next month, according to the CME FedWatch Tool.
  • "While we acknowledge a substantial probability of cuts as early as July, we continue to think markets are priced for more near-term accommodation than appropriately probability-weighted scenarios would suggest," Mann said.
Federal Reserve Chairman Jerome Powell leaves after a press briefing after a Federal Open Market Committee meeting March 20, 2019 in Washington, DC.
Brendan Smialowski | AFP | Getty Images

The no rate cut camp on Wall Street is getting more lonesome by the day, but Citi is still standing its ground.

The economists at Citi maintained their call for no rate cuts this year after the Federal Reserve said the case for an easier monetary policy has strengthened, while dropping the word "patient" in its statement.

"Fed policy – and our call for no cuts in 2019 – remain highly dependent on incoming data over the next few weeks," Catherine Mann, global chief economist at Citi, said in a note on Wednesday. "In particular at least a benign outcome at the G20 and solid payroll growth for June will be necessary for the Fed to avoid cuts in July."

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The Fed has increased expectations of easing monetary policy: Citi economist

Traders interpreted the Fed's dovish tone as a done deal for a July cut, pricing in a 100% chance of at least one reduction next month, according to the CME FedWatch Tool. The central bank's signal also convinced Goldman Sachs to change its tune. The bank now sees two cuts before the end of this year, versus no cuts predicted before the Fed's announcement.

"While we acknowledge a substantial probability of cuts as early as July, we continue to think markets are priced for more near-term accommodation than appropriately probability-weighted scenarios would suggest," Mann said.

The Fed's so-called dot plot shows eight policymakers are favoring one cut this year while the same number voted in favor of staying put and one still wants a rate hike. The central bank also dialed back its inflation forecast for 2019, while keeping the growth expectations unchanged.