The market is bullish, but Citibank still bets on a rate cut! After the forecast, one month later, it shifted to expecting a 25 basis point cut in October, December, and January next year.

The Federal Reserve (Fed) kept interest rates unchanged in June, and after the dot plot shifted to hawkish, Citigroup adjusted its forecast for the Fed's policy path, pushing the overall rate cut timetable back by one month, with the latest expectations of one rate cut each in October 2026, December 2026, and January 2027. Previously, Citigroup's baseline scenario was for the Fed to cut rates in three consecutive meetings in September, October, and December 2026.
(Background: Fed Chair Powell's first speech — Fed holds rates steady, dot plot significantly raises inflation outlook, and hikes rate path across the board)
(Additional context: Fed Chair Powell's debut shocks the market! Traders bet on a rate hike in September, with the possibility of two hikes by year's end)

Table of Contents

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• The trigger was Powell's hawkish debut
• The market is already betting on rate hikes
• Why Citigroup is not revising its forecast

Key Highlights

• Citigroup pushes back the Fed's rate cut timetable by one month, now expecting cuts in October and December 2026, and again in January 2027
• The trigger was the Fed's June decision to keep rates at 3.5% to 3.75%, with the median of the dot plot revised upward from 3.4% to 3.8%, implying a rate hike
• According to LSEG and CME, traders have largely priced in a 25 basis point hike in October; the probability once reached about 60.7%

After the hawkish dot plot from the Fed, Wall Street's rate cut scenario was forced to be rewritten, but Citigroup did not discard it—just moved the entire timeline back by one month. Following this rate decision, Citigroup's latest forecast is that the Fed will cut rates once in October 2026, December 2026, and again in January 2027.

Originally, Citigroup's baseline was for the Fed to cut rates in September, October, and December 2026, starting from September, but now the forecast has shifted to October, pushing everything back by a month.

The trigger was Powell's hawkish debut

The script change was driven by the Fed's clear hawkish turn this time. In the first FOMC meeting after new Chair Kevin Warsh took office, the Fed began policy assessment while deciding to keep the benchmark rate at 3.5% to 3.75%.

What truly alarmed the market was the dot plot, where officials raised the median interest rate forecast for the end of 2026 from 3.4% in March to 3.8%, implying another hike this year. Against the backdrop of persistent inflation pressures, nine out of 18 forecasted officials believe rates will be higher than the current range this year—almost half. Notably, Kevin Warsh himself did not submit his own rate forecast this time. The new Chair's first meeting effectively eliminated expectations of rate cuts, marking a decisive shift.

The market is already betting on rate hikes

Market reactions have been more aggressive than Citigroup's. According to LSEG data, traders have largely priced in the possibility of a 25 basis point rate hike before October; CME FedWatch also shows that the probability of a rate hike in October once surged to about 60.7%.

In other words, while most are betting on rate hikes, Citigroup chooses to stick with rate cuts, just delaying the timetable.

• Citigroup's new forecast: one rate cut each in October and December 2026, and another in January 2027
• Previous forecast: rate cuts in September, October, and December 2026, with the entire schedule pushed back by one month
• The Fed in June maintained rates at 3.5% to 3.75%, with the dot plot median revised from 3.4% to 3.8%
• Of 18 officials, 9 expect rate hikes this year; CME shows the probability of a hike in October once reached about 60.7%

Why isn't Citigroup revising its forecast?

Citigroup's forecast report suggests that between June and August, core CPI may continue to weaken, and the labor market will remain cooling. In their view, the conditions for rate cuts are gradually forming, just with a delayed timeline.

They also add an observation: although Powell didn't state it explicitly, Citigroup believes he likely agrees with the view that if officials have more time to digest recent oil price declines, many of the rate forecasts on the dot plot could be lower.

Even if inflation and employment data improve as expected, it may still take longer for policymakers to reach a consensus on "initiating rate cuts."

This has created an interesting divergence in the market: while money is betting on rate hikes, Citigroup's forecast favors rate cuts, just delayed by a month. Who's right will depend on upcoming CPI and employment data over the next few months.

Frequently Asked Questions

When does Citigroup expect the Fed to cut rates?

Citigroup's latest forecast is that the Fed will cut rates once in October 2026, once in December 2026, and again in January 2027, pushing the previous September, October, and December 2026 forecast back by one month.

Why did the Fed's June decision shift market expectations toward rate hikes?

Because the Fed in June kept rates at 3.5% to 3.75%, and the dot plot raised the median rate forecast for the end of 2026 from 3.4% to 3.8%, implying a possible hike later this year. Among 18 officials, 9 expect higher rates, and CME shows the probability of a hike in October once reached about 60.7%.