Citi Predicts Fed Rate Cuts Will Come Later Than Expected

Citigroup changed its expectations for a Federal Reserve interest rate cut, Reuters reported Thursday (June 18).

The banking giant is a “longstanding Fed dove” among big brokerages, the report said.

Now, however, the hawkish position of policymakers in the United States has Citi projecting 25-basis-point cuts each in October and December, plus another in January 2027. The bank’s previous forecast had the cuts arriving in September, October and December, according to the report.

Other brokerages, like Nomura and Bank of America, do not expect cuts at all and now say there is a growing threat of rate hikes this year, the report said.

New Fed Chairman Kevin Warsh began his tenure with a wide-ranging policy review that covered dropping the forward guidance, according to the report.

“I can’t give you any forward guidance about what we’re going to do next,” he said in his first news conference, adding that it is not “well suited” to the current economic climate, per the report.

Meanwhile, a note from Deutsche Bank analysts said that a “Fed that does not rely as heavily on forward guidance might desire to move quicker on tightening policy, creating risks of rate hikes over the coming meeting,” according to the report.

Some brokerages said a removal would lead investors to lean more heavily on new economic data and commentary from Fed officials to determine the policy path. JPMorgan said speeches by policymakers would “take on added importance,” per the report.

In related news, findings from the Federal Reserve Bank of New York support reports of a “K-shaped economy,” marked by a growing economic divide between low-income and high-income consumers’ spending growth, earnings growth and wealth accumulation.

Rich consumers have benefited from a robust stock market, lower mortgage payments and near-peak home equity levels. Many middle- and low-income consumers have been impacted by the high cost of living, persistent inflation and high interest rates.

“While not necessarily causal, the observed positive association between food insecurity and overall consumer pessimism, together with the increase in the incidence of food insecurity, especially among households at the bottom of the K-shape, point to a potential explanation for the unusually low recent levels of consumer sentiment at a time when the hard economic data paint a more positive picture,” the researchers wrote.