Citi pushes Fed rate-cut forecast to June 2027 after resilient jobs market

Investing.com -- Citigroup has delayed its forecast for the Federal Reserve to restart cutting interest rates until June 2027, following an August jobs report that came in stronger than expected and lessened the need for immediate monetary easing.

According to a research note from Citi economists Andrew Hollenhorst and Veronica Clark, the bank now projects 25-basis-point rate reductions in June, September, and December 2027, scrapping its earlier call for cuts in October and December 2026 as well as January 2027.

This change comes in the wake of Friday's U.S. jobs data, which revealed that employers added 162,000 positions in August—far exceeding the approximately 56,000 that economists had projected. The unemployment rate held steady at 4.1%, and labor-force participation recovered, buttressing the assessment that the labor market stays largely solid.

Citi had earlier anticipated a notable uptick in the unemployment rate during the summer months, echoing the trend observed in 2024 and 2025. In 2026, however, that rise has not materialized to the extent projected, eliminating a key rationale the bank had for forecasting that Fed officials would commence rate cuts this year.

Citi noted that its alternative case for a dovish central bank still stands: subdued momentum in underlying inflation, wages, and core consumer prices should ultimately provide room for policymakers to loosen policy. The bank forecasts a 0.18% month-over-month increase in core CPI, a reading it believes would justify the Fed holding rates steady at its September 15–16 gathering.

Additionally, Citi anticipates a major downward revision to core PCE inflation later this month, which could lead to a more accommodative shift in the Fed's Summary of Economic Projections.

At present, nevertheless, the robust labor market allows policymakers to concentrate more on price pressures instead of job support. Following the payrolls release, market expectations moved significantly: fed funds futures now assign roughly a 61% probability to a 25-basis-point rate hike at the September meeting, up from 52% prior to the report.

As a result, next week's inflation numbers carry added significance. Consensus forecasts put August headline CPI at a 0.4% monthly advance, core CPI at 0.2%, and producer prices similarly at 0.4%.

Market participants will scrutinize the data for signals that disinflation persists, or whether stubborn price pressures might provide the Fed with grounds to hold borrowing costs high for an extended period.