--- title: "Strait of Hormuz Reopens: Will the Fed Pivot Dovish and the Market Reprice Rate Cuts?" type: "News" locale: "en" url: "https://longbridge.com/en/news/289848656.md" description: "Citigroup stated that two major catalysts—falling oil prices and cooling core CPI—are gaining momentum simultaneously. Expectations for the reopening of the Strait of Hormuz are weighing on energy prices, while May's core CPI rose by only 0.21% month-over-month, accelerating the unraveling of the Fed's hawkish logic. The probability of Chair Walsh signaling a dovish shift at this week's FOMC Meeting is tilting higher. With significant room for further decline in the two-year U.S. Treasury yield, a repricing of rate cuts could be imminent" datetime: "2026-06-16T01:52:24.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/289848656.md) - [en](https://longbridge.com/en/news/289848656.md) - [zh-HK](https://longbridge.com/zh-HK/news/289848656.md) --- # Strait of Hormuz Reopens: Will the Fed Pivot Dovish and the Market Reprice Rate Cuts? Two major catalysts for declining inflation are gaining momentum simultaneously, providing ample justification for Federal Reserve Chair Walsh to pivot dovish at this week's Federal Open Market Committee (FOMC) Meeting. According to Zhuifeng Trading Desk, Citigroup Research stated in a report released on June 15 that **the planned reopening of the Strait of Hormuz will drive oil prices lower, eliminating the upside risk to inflation from energy prices; meanwhile, the core CPI data released last week was notably cool, rising by only 0.21% month-over-month.** The combination of these two developments has further weakened the rationale for the Federal Reserve to maintain its hawkish stance, ultimately bringing the path to interest rate cuts back into focus. For the market, this assessment has direct pricing implications. The yield on the two-year U.S. Treasury note has fallen by approximately 13 basis points compared to a week ago, but it remains more than 60 basis points above its February level. **There is still room for the market to compress its pricing of rate hikes, and further scope to increase its pricing of rate cuts.** ## Energy Price Pressure Eases, Upside Inflation Risks Dull Expectations for the reopening of the Strait of Hormuz are one of the core drivers behind the current dovish logic. Once the strait resumes traffic, increased crude oil supply will lead to lower oil prices and other energy costs. Gasoline prices have declined for a consecutive month, with the national average dropping from around $4.50 per gallon to $4.00. **Citigroup expects further declines following other energy varieties.** This trend will bring at least several months of negative overall inflation readings in the coming months, prompting Federal Reserve officials to reclassify energy prices from an "inflation risk" to a "neutral or even deflationary factor." ## Core CPI Cools, Divergence in Inflation Metrics Intensifies At the core inflation level, although core PCE is expected to remain strong in May, core CPI has shown clear signs of cooling, rising by only 0.21% month-over-month. **Core PCE has increasingly become an "outlier" among various inflation metrics—trimmed-mean PCE and core CPI are both closer to the target level, with a clearer downward trend.** This divergence is being increasingly recognized by both the market and Federal Reserve officials, providing data support for a dovish stance. ## Hawkish Adjustments at the FOMC Meeting Fully Priced In, Room for Dovish Signals The report expects that this week's FOMC statement will remove the "accommodative bias" wording, and the median of the dot plot will also indicate that interest rates will remain unchanged this year. However, these hawkish adjustments have been fully anticipated by the market and do not constitute new information. The real variable lies in Chair Walsh's choice of wording. Combining the latest developments regarding the reopening of the Strait of Hormuz and the cooling trend in core inflation, the risk of Walsh releasing dovish signals at this meeting is tilting higher. If his wording is more moderate than expected, the market's repricing of the rate cut path may accelerate. ## U.S. Treasury Yields Still Have Room to Fall, Market Pricing Needs Adjustment From a market pricing perspective, the report believes that the implied probability of rate hikes in current interest rate futures remains too high. Although the two-year U.S. Treasury yield has fallen by approximately 13 basis points compared to a week ago, it is still more than 60 basis points higher than its February level, indicating that the market has not fully digested the impact of easing inflation risks. As the upside inflation risks that previously supported hawkish expectations gradually dissipate, the market is expected to further compress pricing for rate hikes while simultaneously increasing pricing for rate cuts, leaving room for U.S. Treasury yields to decline further. ### Related Stocks - [C.US](https://longbridge.com/en/quote/C.US.md) - [C-R.US](https://longbridge.com/en/quote/C-R.US.md) ## Related News & Research - [Citigroup Sees Markets Revenue Growth Far Above 2% Analyst Forecast](https://longbridge.com/en/news/289503378.md) - [Silicon Valley’s BizLink to acquire Singapore-Based Interplex Datacom from Blackstone for $900M](https://longbridge.com/en/news/289418302.md) - [Tech slump and inflation fears push bear market risks higher](https://longbridge.com/en/news/289555164.md) - [Long-maturity, high-quality government bond yields expected to rise](https://longbridge.com/en/news/289722981.md) - [Hyperscalers, Headline-Hell, & Hawkishness: Goldman Drops Weekend Chartfest](https://longbridge.com/en/news/289702279.md)