The Federal Reserve's hawkish signals strengthen, and Citigroup pushes back the interest rate cut timetable by one month

News update from Mars Finance: On June 18, after the Federal Reserve released its latest interest rate decision, Citigroup adjusted its forecast for the Fed’s policy path, shifting the start time for rate cuts back by one month overall. Citigroup’s latest estimate is that the Fed could cut rates once in October 2026 and once in December 2026, and continue cutting in January 2027. Previously, Citigroup’s baseline scenario was that the Fed would begin cutting rates in September 2026, with consecutive rate cuts in September, October, and December.

The report says the Fed launched a policy review after the appointment of its new Chair, Kevin Warsh, while also deciding to keep the benchmark interest rate unchanged. Against the backdrop of ongoing inflation pressures, nearly half of policymakers currently expect there is still a possibility of rate hikes this year. Citigroup said in the report that although Warsh did not explicitly mention it, he is very likely to share the bank’s view that if officials had more time to digest the recent sharp drop in oil prices, many of the dots in the dot plot would have been lower.

LSEG data shows that traders have already largely priced in the possibility that the Fed could raise rates by 25 basis points before October. Citigroup believes that from June to August, core CPI may continue to weaken, and the labor market will also continue to cool, but even if the data improves, policymakers may still need more time to reach a consensus on initiating rate cuts.