Look at this, how interesting. All the previous talks about rate hikes were actually to suppress prices. A wave of decline, and then it starts again... This is so similar to 2025... In 2025, there was constant hype about tariff wars, as if WWIII was imminent, but then nothing came of it, and FOMO went through the roof... However, this time, US stocks barely fell, it's just crypto that took a beating...

Citi: Reasons for rate hikes have disappeared, expects Fed to restart rate cuts in October

July 5 – Citi Research said in its US Economic Weekly report released on July 2 that the June US nonfarm payroll data clearly weakened, strongly refuting the necessity of rate hikes. Citi believes that several factors that previously supported the hawkish stance, including rising oil prices, accelerating wage growth, and core PCE above target, have faded, and "the reasons for rate hikes have disappeared."

Data shows that US nonfarm payrolls added only 57k in June, well below expectations, and the previous two months' data were revised down by a combined 74k. After revisions, the average monthly nonfarm payroll gain over the past three months fell to about 111k, a significant drop from the pre-revision level of over 180k. The June unemployment rate fell from 4.296% to 4.189%, but Citi believes this is mainly due to the labor force participation rate dropping from 61.8% to 61.5%. If the participation rate remained unchanged, the actual unemployment rate would have risen to over 4.5%.

On inflation, Citi says multiple factors are jointly suppressing price pressures. Oil prices have fallen back to pre-conflict levels, and July CPI and PCE data are expected to decline month-over-month; further slowing in housing rents will also drag down core CPI and core PCE. In addition, the methodology revision for core PCE will adopt a more reasonable price adjustment approach for AI-related goods. Citi estimates that the year-over-year growth rate of revised core PCE could be lowered by 20 to 30 basis points, which will be officially reflected in September.

Citi maintains its baseline forecast, expecting the Fed to stand pat at the July and September FOMC meetings, then cut rates by 25 basis points at the October 28 meeting for the first time, and another 25 basis points in December, bringing the federal funds rate range to 3.0% to 3.25% by year-end. Citi also expects the Fed to cut rates three more times in 2027, with a terminal rate range of 2.75% to 3.0%.