Amid dual pressures from geopolitical conflict and rebounding inflation, market expectations for a Federal Reserve rate cut are experiencing violent swings. The core of current market speculation is: Will soaring energy prices trigger sustained inflation, or will they undermine consumer demand and force the Fed to cut rates?
On April 21, according to Zhongfeng Trading Desk, Citigroup provided clear bullish reasons for rate cuts in its latest research report, stating that oil supply disruptions are merely temporary disturbances; while the path to rate cuts may be bumpy, the direction is clear. In contrast, Deutsche Bank dashed hopes, warning that Fed policy has reached a neutral position and is expected to maintain current rates indefinitely.
As the views of these two major investment banks clash, the upcoming March retail sales data will serve as the critical litmus test to break the deadlock. This data will not only reveal the true destructive impact of high oil prices on core consumption but also directly determine the Fed's near-term policy path.
<h2>Citigroup: Geopolitical Disruptions Are Temporary, Direction of Rate Cuts Unchanged</h2>
Despite continued market influence from geopolitical developments, Citigroup firmly believes that the path to lower rates and a more dovish Fed policy still exists.
The core logic behind this judgment is: The impact of the Strait of Hormuz situation on oil supply is increasingly likely to be temporary rather than a source of sustained inflation. On April 18, there were reports that the Strait of Hormuz would reopen; although these were subsequently questioned, Treasury yields and oil prices have already retreated from Thursday highs and remain at low levels—this itself indicates the market is pricing in a &#34;temporary shock&#34; scenario.
The report points out that Citigroup's logic chain is clear: Geopolitical conflict is temporary → Oil price shock is not sustained → Inflation pressure does not spread → Conditions exist for the Fed to return to the rate-cutting track.
Additionally, a series of underlying economic data tracked by Citigroup shows subtle changes in the macro-financial environment:
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<li>Liquidity and Financial Conditions: The scale of the Fed's Reverse Repurchase Agreement (RRP) has fallen significantly to near zero; meanwhile, recent financial conditions are tightening, and mortgage rates are showing an upward trend again.</li>
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<li>Labor Market: Indeed job vacancy data has recently been consolidating, though initial unemployment claims generally remain low.</li>
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<li>Funding Side: As of now, personal tax refunds this year (cumulative scale in billions of dollars) are slightly higher than the same period last year.</li>
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<h2>Tonight's Litmus Test: Why Is the March &#34;Control Group&#34; Retail Sales Data Critical?</h2>
Amid swinging rate cut expectations, the upcoming March retail sales data will provide investors with first-hand clues, revealing to what extent soaring gasoline prices have reduced consumer spending on other goods categories.
Citigroup emphasizes that investors must &#34;look beyond the surface&#34; when interpreting this data. Due to rising gasoline prices, nominal retail sales in March will inevitably surge. However, the data that truly determines the Fed's policy direction is the &#34;Control Group&#34; sales data.
The report notes that this data excludes gas station sales and certain specific categories, providing a more truthful and accurate reflection of whether high oil prices have led to weak spending in other areas. If the &#34;Control Group&#34; data unexpectedly weakens, it will strongly confirm that high inflation is undermining demand, thereby providing crucial data support for the Fed's rate-cutting logic.
<h2>Deutsche Bank's Cold Water: Policy Has Reached Neutrality, Fed May Hold Steady Indefinitely</h2>
In stark contrast to Citigroup's optimistic outlook, Deutsche Bank offers a highly cautious assessment of the rate cut outlook. The bank explicitly states in its report that the Fed is expected to maintain current rates indefinitely because current policy has reached a neutral position.
Deutsche Bank's pessimistic outlook is primarily based on the following core points:
Stalled Disinflation: Broad inflation indicators show that progress in the US fight against inflation has stalled.
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Officials Shift Hawkish: Tracking of Fed officials' statements by Deutsche Bank shows that officials such as Waller and Miran have adopted a more hawkish tone, while most officials continue to believe the current policy stance is &#34;well positioned.&#34; Specifically:
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<li>Waller: Attitude has become more hawkish. He pointed out that if the Middle East conflict prolongs, it could block the rate-cut path; a series of shocks (tariffs combined with oil prices) could trigger more persistent inflation increases; he also emphasized that core inflation excluding tariffs is close to 2%, and the labor market has vulnerabilities;</li>
<li>Miran: Currently the most dovish voice, supporting three even four rate cuts this year, believing war has not changed the inflation outlook 12 to 18 months later, and oil price shocks are temporary;</li>
<li>Williams: Believes policy is &#34;exactly where it needs to be,&#34; raising the 2026 inflation forecast to about 2.75% and lowering the 2026 economic growth forecast to 2% to 2.5%;</li>
<li>Hammack: Clearly stated that rates will &#34;remain unchanged for a considerable time&#34;;</li>
<li>Goolsbee: Warned that if oil prices remain sustained at $90 per barrel, it may spread to other prices; further rate cuts in 2026 are unlikely, with cuts potentially needing to wait until 2027;</li>
<li>Daly: Believes current policy is in a &#34;very good position&#34;; if oil price shocks persist until year-end, a market pricing shift to &#34;zero rate cuts&#34; would not be surprising.</li>
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The March FOMC minutes also showed that the vast majority of officials believe the process of returning inflation to the 2% target will be delayed; some officials even discussed the necessity of adding &#34;two-way risks&#34; language to the meeting statement, implying that rate hikes cannot be completely ruled out.
Deutsche Bank's hawk-dove scoring of Fed officials shows that the average score for the voting committee in 2026 was 2.8 (1 being most dovish, 5 being most hawkish), leaning overall towards neutral to slightly dovish, but dovish voices are clearly in the minority.
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Market Pricing Completely Reverses: Facing persistent inflation pressures and strong economic resilience, market expectations have undergone dramatic change. According to Deutsche Bank data, current market pricing expects &#34;zero rate cuts&#34; throughout 2026, with only one cut expected in the summer of 2027.
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Deutsche Bank expects that under the baseline scenario, the federal funds rate will remain at 3.63% throughout 2026 to 2028, with no rate cuts all year.

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Citigroup believes geopolitical disruptions are temporary and the direction of rate cuts remains unchanged. The key to breaking the deadlock lies in the March "control group" retail sales data released tonight, which will reveal whether high oil prices are undermining core consumer demand, directly determining the Fed's near-term policy path. Deutsche Bank warns that policy has reached neutrality and rates may not be cut indefinitely

- Current market expectations for Federal Reserve rate cuts are highly volatile due to geopolitical tensions and rising inflation.  
- Citibank argues that current oil supply disruptions are temporary, suggesting a trend toward lower rates, while Deutsche Bank asserts that the Fed’s policies are already neutral and likely to remain unchanged indefinitely.  
- The upcoming March retail sales data is crucial, as it will reveal the impact of high gasoline prices on consumer spending, influencing the Fed’s future policy direction.

Will the Fed Cut Rates Again? Tonight's Data is Critical