Does the Fed still have interest rates? This data is crucial tonight

Original by Dong Jing

Source: Wall Street

The market’s expectations of the Fed’s interest rate decline are swaying in the midst of geopolitical conflict and a rebound in inflation. At the heart of the current market game is whether high energy prices will trigger sustained inflation or reverse consumer demand and push the Fed to lower interest rates

On 21 April, according to wind trackers, Citi ' s latest report gave clear reasons for the excess interest rate, arguing that the interruption in the supply of crude oil was only a brief disturbance, and that the path to the interest rate reduction had been slow but in a clear direction, while Deutsche Bank had poured cold water warning that the Fed ' s policy was in a neutral position and expected to maintain the current interest rate indefinitely。

The forthcoming publication of retail sales data in March will be a key test to break the deadlock at a time when the views of the two major players intersect. This data will not only reveal the real destructive effect of high oil prices on core consumption, but will directly determine the policy path of the Fed in the near future。

Citi flag: geo-disturbation is short and the interest rate remains unchanged

Although markets continue to be affected by geopolitical developments, Citi firmly believes that the path to lower interest rates and more dove Fed policies remains。

The core logic of this judgement is that the impact of the situation in the Strait of Hormuz on the supply of oil is increasingly likely to be short-lived rather than persistent sources of inflation. On April 18, there were reports that the Strait of Hormuz would be reopened and that, despite subsequent challenges, the rate of return on national debt and oil prices had fallen from a high on Thursday and remained low - This is in itself a price that the market is setting for a "shock short" scenario。

The study notes that the logical chain of the Citi flag is clear: the short-lived oil price shock of geo-conflicts does not spread inflationary pressures, and the Fed has the conditions to return to the interest-rate reduction track。

In addition, a series of bottom-up economic data tracked by Citibank indicates that the macro-financial environment is undergoing subtle changes:

LIQUIDITY AND FINANCIAL CONDITIONS: THE FEDERAL RESERVE’S REPURCHASE (RRP) SIZE HAS FALLEN SIGNIFICANTLY TO NEAR ZERO; AT THE SAME TIME, FINANCIAL CONDITIONS HAVE BEEN TIGHTENING IN THE RECENT PAST, AND INTEREST RATES ON MORTGAGES HAVE AGAIN INCREASED。

Labour market: Indeed job opening data have recently been organized across the board, although the overall number of people applying for unemployment benefits for the first time remains low。

Funding: To date, individual tax returns (cumulative in billions of United States dollars) this year have been slightly higher overall than during the same period last year。

Tonight's test: What's the key to Control Group retail sales data in March

At a time when interest rates are expected to swing, the forthcoming March retail sales data will provide investors with first-hand clues as to the extent to which high gasoline prices reduce consumer spending in other commodity categories。

Citi stresses the need for investors to "strike away" when interpreting the data. Owing to the increase in the price of petrol, nominal retail sales in March will inevitably surge. However, what really determines the Fed’s policy is its sales data。

The report notes that the exclusion of petrol stations and certain specific categories of sales from the data is a more realistic and accurate reflection of whether high oil prices have led to weaker consumer spending in other areas. If the Control Group’s data were unexpectedly weak, it would be a powerful proof that high inflation is reversing demand, thereby providing the Fed with critical data support for its interest-rate logic。

Deutsche Gin's cold water: policies are neutral, the Fed or indefinitely

In contrast to Citi’s optimistic expectations, Deutsche Bank made a very cautious judgement about the prospect of a reduction in interest rates. In its study, the Deutsche Bank made it clear that the Fed was expected to maintain current interest rates indefinitely, as current policies were already neutral。

The Deutsche Bank's pessimism expectations are based on the following core points:

De-inflation stagnating: Broad inflation indicators indicate that progress against inflation in the United States has stalled。

Officials turn their positions around: The tracking by Deutsche Bank of statements to Federal Reserve officials shows that officials such as Waller and Milan have adopted a more hawk tone, while most officials continue to consider the current policy position “well appropriate”. Specifically:

• Waller: Attitudes towards eagles. He noted that prolonged conflict in the Middle East would cut off the interest-rate path and that a series of shocks (tariff overloads of oil prices) could trigger a more sustained rise in inflation, while stressing that core inflation after removing the effects of tariffs was close to 2 per cent and that the labour market was vulnerable
• Miran: is the voice of the most doves of the day, supporting three or four interest cuts this year, arguing that the war has not changed the inflation outlook 12 to 18 months later and that oil price shocks are temporary
• (a) Williams: The policy is considered to be "just where it needs to be" and the inflation forecast for 2026 has been revised upwards to about 2.75 per cent and the economic growth forecast for 2026 downwards to 2 to 2.5 per cent
• Hammack: Make it clear that interest rates will remain unchanged for a long time
• Goolsbee: warns that if oil prices remain constant at $90 per barrel, they may spread to other prices; there is little possibility of a further reduction in interest rates in 2026, which may have to wait until 2027
• Daly: It is not surprising that the current policy is in a "very good position" and that if the oil price shock continues until the end of the year, market pricing is shifting to a "zero drop in interest."。

The Fed’s March minutes similarly show that the vast majority of officials believe that the return of inflation to the 2% target will be delayed; some even discussed the need to include the words “two-way risk” in their statements, implying that the possibility of an increase is not entirely excluded。

The German Federal Reserve officials' score of eagle pigeons shows that in 2026 the voting committee scored an average of 2.8 points (one of the most doves, five of the eagles) and that the overall bias was slightly neutral, but the voice of the doves was clearly in the minority。

Market pricing has been reversed: market expectations have changed dramatically in the face of persistent inflationary pressures and strong economic resilience. According to Deutsche Bank, the current market pricing is expected to be zero interest rate reduction for the whole of 2026, not until summer 2027。

Germany expects that, in the baseline scenario, federal fund interest rates will remain at 3.63 per cent for the entire period from 2026 to 2028, without any reduction throughout the year。