Citi has postponed its forecast for a rate cut until June 2027 following the labor market report
The bank had previously anticipated that the Fed would resume easing monetary policy in October
A strong U.S. labor market report prompted Citi to revise its interest rate forecast / Photo: Unsplash/Declan Sun
Citigroup has moved up its forecast for the next Fed rate cut from October 2026 to June 2027 following the release of a strong U.S. jobs report, Reuters reports.
Citi now expects three 25-basis-point rate cuts in 2027—in June, September, and December. Previously, the bank had forecast cuts in October and December 2026, followed by one in January 2027.
In August 2026, U.S. employers added 162,000 jobs, exceeding market expectations by a factor of three, while the unemployment rate remained at 4.1%. According to Citi’s assessment, these figures suggest that Federal Reserve officials will view the employment situation as generally stable and will focus primarily on inflation risks.
What's the sentiment in the market?
The employment data also shifted market expectations: Fed rate futures now put the probability of a rate hike at the regulator’s September 15–16 meeting at 61%, up from 52% before the report was released, according to Reuters. Traders estimate the probability of a rate hike at 58.4% and the probability of rates remaining unchanged at 41.6%, according to the FedWatch tool. A day ago, these percentages were nearly equal.
The labor market report was “unequivocally strong” and confirmed the resilience of the labor market, according to Olu Sonola, head of U.S. economics at Fitch Ratings, as quoted by Bloomberg. According to the expert, the main risk for the markets will be the release of the Consumer Price Index (CPI) data next week: “This report, in particular, has the potential to significantly change the situation.”
“Everything will depend on next week’s inflation data,” agrees Elena Shulyateva, senior U.S. economist at The Conference Board, as quoted by Bloomberg. A “large group” of Fed officials will be looking for signs in this data that inflation is sustainably returning to the 2% target. “If that doesn’t happen, I think they’ll raise rates,” she says.
On September 4, U.S. President Donald Trump demanded that the Federal Reserve lower interest rates, threatening to sever trade relations with countries with which the U.S. has a trade deficit (that is, the U.S. buys more goods from them than it sells).
This article was AI-translated and verified by a human editor
