Citigroup has issued a stark warning, pushing back its projected timeline for Federal Reserve interest rate cuts to late 2026 as economic risks intensify. The bank now forecasts a potentially sharp 10% market correction this summer, driven by a deteriorating labor market and escalating geopolitical tensions with Iran. This revised outlook comes as former President Trump's push to install Kevin Warsh at the Fed has stalled, removing a potential catalyst for earlier monetary easing.

Fed officials face weaker labor supply and delay the path to rate cuts

The Fed report said such weak labor force growth is unprecedented in recent U.S. history. It said near-zero labor force growth would push breakeven employment growth near zero too.

Negative job growth could then become almost as likely as positive job growth in any month. The report also said any growth in potential GDP would need to come entirely from productivity growth.

Traders have almost completely priced out any U.S. rate cut this year, according to CME FedWatchTool data, after two cuts had been expected before the Iran war began.

Oil markets stayed volatile during the conflict and after the closure of the Strait of Hormuz, where about 20% of the world’s oil supply passes each year. AAA says the national average price for regular gas is now above $4 a gallon, up more than $1 since the war began.

Federal Reserve Bank of New York President John Williams said the jump in energy costs is straining families already hit by inflation. Williams said, “Higher energy prices affect inflation. It affects also the disposable income that families have, too. So, it hits both inflation, but also it hits demand in the economy.”

Trump advances Kevin Warsh while the Powell probe keeps hanging over the Fed

The Senate Banking Committee will hold a nomination hearing on April 16 for Kevin Warsh to become the next chair of the Federal Reserve, CNBC reported, citing a person familiar with the matter. Warsh’s nomination is moving ahead even as a separate criminal probe into the Fed continues.

Sen. Thom Tillis, a Republican from North Carolina and a committee member, has said he will not vote to confirm Warsh until the probe is resolved. President Donald Trump still wants Warsh confirmed.

The probe is examining allegations that current Fed Chair Jerome Powell lied to Congress about costly renovations to Fed offices. Powell has rejected that and said the probe is being used to pressure him into lowering rates, something Trump has demanded.

The administration has said the Department of Justice will decide whether Powell is investigated, but Trump has repeatedly shown support for the effort.

Judge James Boasberg declined on Friday to reconsider his earlier move to quash subpoenas into the Fed. That means the subpoenas are not moving forward, and the investigation remains unclear.

On Saturday, a spokesman for U.S. Attorney for the District of Columbia Jeanine Pirro said, “We will absolutely appeal the judiciary’s interference with our access to the grand jury.”

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