Citigroup pushes back Fed rate-cut timeline amid rising hawkishness

Citigroup has revised its interest rate cut forecast, now expecting cuts in October and December 2026, and January 2027, due to a more hawkish turn from Fed officials.

Citigroup ​has pushed back its expectation ​for the U.S. Federal Reserve cutting ‌interest rates ​by one month, citing a more hawkish turn from Fed officials.

The Wall Street firm now forecasts cuts in ‌October and December 2026, followed by one in January 2027, compared with its earlier projection for cuts in September, October and December. The Fed left its benchmark rate unchanged on Wednesday ‌as new Chair Kevin Warsh began his term with a broad policy review, ‌while nearly half of policymakers now expect rates to rise this year amid mounting inflation concerns.

"While Warsh did not mention it explicitly, he likely shares our view that many of these dots would have been ⁠lower ​had officials had more ⁠time to digest the rapid drop in oil prices over recent days," Citigroup said. Warsh, who was picked ⁠by U.S. President Donald Trump with expectations of rate cuts, now faces the challenge of ​waning support for such a move.

Traders have fully priced in a 25-basis-points hike ⁠by October, LSEG data showed. The Iran war had earlier pushed up fuel prices and raised concerns about global ⁠supply ​disruptions, potentially driving inflation above the Fed's 2% target.

While oil prices have since fallen sharply after Iran and the U.S. agreed to restore flows through the Strait ⁠of Hormuz, uncertainty remains over the deal. Citigroup analysts said weaker core CPI readings and ⁠cooling labor ⁠market conditions are still expected over the June–August period, but a consensus among policymakers to begin cutting rates may take longer to emerge.