What is Citi's chief US economist Andrew Hollenhorst's base-case forecast for Federal Reserve interest rate cuts in 2024, and what key condition must be met for that forecast to hold?

Citi’s chief US economist Andrew Hollenhorst maintains a base-case forecast of three Fed rate cuts in 2024, beginning in September, but explicitly conditions this on a weakening labor market over the next several months; if that labor market deterioration does not materialize, he stated that rate cuts could be delayed until 2027.

According to Hollenhorst, how has the recent decline in oil prices — driven by US-Iran developments — affected the Fed’s policy flexibility and inflation outlook?

Hollenhorst said the recent drop in Brent oil below $80 a barrel — triggered by US-Iran talks on reopening the Strait of Hormuz and extending a ceasefire — has reversed prior inflationary pressure into deflationary pressure, giving Fed Chairman Kevin Warsh 'a lot more flexibility' to make a dovish case at the upcoming policy meeting.