Citi has pushed its forecast for the next Federal Reserve rate cut back to June 2027, abandoning its earlier call for cuts starting in October 2026. The bank cited a stronger-than-expected August jobs report that reduced the urgency for near-term easing.
Citi economists Andrew Hollenhorst and Veronica Clark now expect 25-basis-point cuts in June, September and December 2027, scrapping the bank's prior projection of cuts in October and December 2026 and January 2027. The revision follows Friday's employment report, which reshaped expectations for how soon the Fed can ease.
A jobs report that changed the calculus
Employers added 162,000 jobs in August, far above the roughly 56,000 economists had expected. The unemployment rate held at 4.1%, and labor-force participation rebounded, reinforcing the view that the labor market remains broadly stable.
Citi had previously expected unemployment to rise significantly over the summer, mirroring the pattern seen in 2024 and 2025. That increase never materialized in 2026, removing one of the bank's main reasons for expecting the Fed to start cutting rates this year.
Inflation still the Fed's focus
The bank said its other argument for a more dovish Fed remains intact: cooling trends in underlying inflation, wages and core consumer prices should eventually let policymakers ease. Citi expects core CPI to rise 0.18% month over month, a pace it says would support the Fed holding steady at its September 15-16 meeting.
It also expects a substantial downward revision to core PCE inflation later this month, which could prompt a more dovish adjustment to the Fed's Summary of Economic Projections.
Markets reposition ahead of next week's data
Market pricing shifted sharply after the jobs report, with fed funds futures putting the probability of a 25-basis-point Fed hike at the September meeting at about 61%, up from 52% before the data. For now, the stronger labor market means policymakers can afford to focus more heavily on inflation rather than on supporting employment.
That makes next week's inflation data particularly important. Economists expect August headline CPI to rise 0.4% month over month, while core CPI is forecast to increase 0.2%. Producer prices are also expected to rise 0.4%. Investors will watch the figures for evidence that disinflation is continuing, or whether persistent price pressures could give the Fed reason to keep rates higher for longer.
Source: Investing.com
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