Citigroup has revised its outlook for Federal Reserve interest rate cuts, delaying its projected timeline by one month as policymakers adopt a more cautious stance. The Wall Street bank now anticipates the Fed will reduce rates in October and December 2026, followed by an additional cut in January 2027. This replaces its earlier forecast for cuts in September, October, and December of the same year.
The revision follows the Federal Reserve's decision to hold its benchmark interest rate steady on Wednesday, marking the start of a broad policy review under newly appointed Chair Kevin Warsh. Warsh, selected by President Donald Trump amid expectations of support for lower rates, now faces a divided committee with nearly half of policymakers projecting rate increases this year due to inflation concerns.
Fed Officials Signal Caution
According to Citigroup, recent communications from Fed officials indicate a heightened degree of caution regarding future easing. In a note, the bank stated, "While Warsh did not mention it explicitly, he likely shares our view that many of these dots would have been lower had officials had more time to digest the rapid drop in oil prices over recent days." The bank suggested that recent movements in energy markets may not yet be fully reflected in policymakers' projections, though it acknowledged that consensus within the Fed is shifting more slowly toward rate cuts than previously anticipated.
Market expectations have also evolved. According to LSEG data, traders have fully priced in a 25-basis-point rate hike by October, reflecting the shift in sentiment. This hawkish backdrop has weighed on risk assets, with silver tumbling to a two-month low as rising yields and hawkish Fed bets pressure precious metals.
Oil Prices and Inflation Remain Key Factors
The conflict involving Iran initially drove fuel prices higher, raising concerns about potential disruptions to global energy supplies and pushing inflation further above the Fed's 2% target. Although oil prices have since declined sharply following an agreement between Iran and the United States to restore flows through the Strait of Hormuz, uncertainty about the arrangement's durability persists. Citigroup analysts noted that weaker core Consumer Price Index readings and softer labour market conditions are still expected during the June-to-August period, but they cautioned that policymakers may require additional evidence before broadly supporting rate reductions.
The evolving rate outlook has broader implications for markets. For instance, bitcoin bounced above $63,000 after defending the $60,000 level, though bearish signals persist amid the hawkish Fed stance.
Citigroup Shares Near Multi-Year Highs
Citigroup's own shares have continued to trade near multi-year highs, hovering in the $143–$146 range, close to levels not seen in approximately 17 years. The broader outlook for the bank remains positive, with analysts maintaining a bullish to moderately optimistic view. The revised rate cut timeline reflects a broader recalibration of expectations across Wall Street as the Fed navigates a complex economic landscape.
This article is for informational purposes only and does not constitute financial advice.
