Citigroup has significantly postponed its expectation regarding Federal Reserve interest rate cuts following strong employment data from the US.
The bank announced that it expects the Fed to make its next 25 basis point interest rate cut in June 2027. According to Citigroup’s new forecast, the Fed is expected to implement three separate 25 basis point interest rate cuts in June, September, and December 2027. Citi previously predicted rate cuts in October and December 2026, and January 2027.
Strong US employment data influenced the forecast revision. In August, non-farm employment increased by 162,000 people, exceeding market expectations, while the unemployment rate remained stable at 4.1 percent.
Citigroup, which has long been known for its relatively dovish views on the Fed, stated that recent data may lead policymakers to assess the employment market as generally stable and shift the focus of monetary policy to the inflation outlook.
In a note they published, Citi economists Andrew Hollenhorst and Veronica Clark pointed out that the unemployment rate remained unchanged and the labor force participation rate had recovered significantly.
Following strong employment data, market expectations for the Fed have also changed. According to Fed funds futures, the probability of the Fed raising interest rates at its September 15-16 meeting has risen from 52 percent before the employment report to 61 percent.
Investors are expected to watch the consumer price index (CPI) and producer price index (PPI) data to be released next week for new signals regarding the Federal Reserve’s future interest rate policy.
*This is not investment advice.