Citi delays outlook for Fed-cut timeline; data, speeches in focus after Warsh policy reform

Citigroup has revised its interest rate forecast, now expecting the US Federal Reserve to cut rates in October and December 2026, and January 2027, rather than September.

Citigroup has pushed back ‌its expectation for the U.S. Federal Reserve to begin cutting interest rates by a month, pointing to a hawkish stance from policymakers. Citi, a longstanding Fed dove among major brokerages, now forecasts 25-basis-point cuts each in October and December 2026, followed by one in ‌January 2027. It earlier projected easing in September, October and December. The Fed left its benchmark rate unchanged on Wednesday ‌under new Chair Kevin Warsh, but nearly half of policymakers now expect rates to rise this year amid mounting inflation concerns.

Nomura and BofA, both brokerages that do not expect any Fed easing, said there is a growing risk of rate hikes this year, following the hawkish projections. Traders are ⁠pricing in ​a 50% chance of ⁠a rate hike in September, according to CME Group's FedWatch tool, higher than the 27% expected a day ago. DATA, SPEECHES IN FOCUS AS WARSH DROPS ⁠FORWARD GUIDANCE

Warsh began his term with a broad policy review that included dropping the forward guidance. "I can't give you any forward ​guidance about what we're going to do next," he said in his debut press conference, adding that it is ⁠not "well suited" to the current economic moment. Deutsche Bank analysts, in a note, said, "A Fed that does not rely as heavily on forward guidance ⁠might ​desire to move quicker on tightening policy – creating risks of rate hikes over the coming meeting."

Some brokerages said the removal would push investors to rely more on incoming economic data and commentary from Fed officials to gauge the policy path, ⁠with J.P. Morgan noting that policymakers' speeches would "take on added importance". "The shift away from forward guidance toward data- and event-driven ⁠communication increases uncertainty about ⁠the policy reaction function," Barclays said.

Barclays, which previously forecast a 25 bps cut in March 2027, now expects the central bank to keep rates steady through next year.