Citi now expects the Fed to raise rates by 25 basis points in December after September inflation came in above expectations. The bank sees no cuts until June 2027, while futures show a debate over whether an October hike comes first.
Citigroup now expects the Federal Reserve to raise interest rates by 25 basis points in December, after US consumer inflation for September topped forecasts. The bank had previously forecast no further Fed moves this year.
Citi also expects the Fed to leave rates unchanged after that December hike, with cuts not starting until June 2027. Financial markets had already largely priced in a December increase, according to the source.
September inflation runs hotter than expected
Wednesday's Consumer Price Index report showed headline inflation rising to 3.7% in the year to September from 3.4% in August, against 3.6% expected. Prices rose 0.6% on the month, in line with forecasts, driven by a surge in gasoline costs.
The more worrying detail for policymakers was that price pressures spread beyond energy. Core inflation climbed to 2.6% from 2.4%, above the 2.5% expected, with a monthly gain of around 0.3% against forecasts of 0.2%. That raised concern that underlying inflation could prove sticky.
Futures put October in play
Markets reacted quickly. Rate futures pointed to roughly a 94% probability of a December hike.
For the Fed's October 27 to 28 meeting, CME Group's FedWatch tool showed the implied chance of an October hike jumping to around 47% after the data, from roughly 22% beforehand. That has since eased to around 32% at the time of writing.
As a result, the October meeting is a genuine decision point rather than a formality, while a December rate hike is still treated as close to certain. Attention now turns to remaining Fed commentary before the meeting and to the next round of inflation data, including the September PCE figures.
Source: Investinglive
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