The Fed's Hawkish Signal Strengthens as Citigroup Pushes Back Rate Cut Timeline by One Month

June 18 — Citigroup has revised its outlook for the Federal Reserve’s policy path following the central bank’s latest interest rate announcement, pushing back the overall timeline for potential rate cuts by one month. The bank’s updated base case projection now calls for the Fed to deliver a single 25-basis-point rate cut in October 2026, another in December 2026, and a third in January 2027. Previously, Citigroup’s baseline forecast had the Fed launching its rate-cut cycle in September 2026, with consecutive reductions in September, October, and December of that year. The Fed initiated a policy review after appointing new Chair Kevin Warsh, and ultimately opted to keep its benchmark interest rate unchanged. Against a backdrop of persistent inflationary pressure, nearly half of the central bank’s policymakers now see a plausible chance of a rate hike this year. In its report, Citigroup noted that while Warsh did not state this explicitly, he is likely aligned with the view that if officials had more time to digest the recent sharp drop in oil prices, many of the dots in the Fed’s dot plot would point to lower policy rate projections. Data from LSEG shows traders are currently pricing in roughly a 25-basis-point rate hike from the Fed before October. Citigroup added that even as core Consumer Price Index (CPI) readings are expected to continue softening between June and August, and the labor market keeps cooling, policymakers will still need extra time to form a consensus on starting rate cuts.