Citi turns hawkish on Fed after inflation surprise, expects December rate hike

Citigroup ​said on Wednesday ‌it expects the ​Federal Reserve to raise interest rates by 25 basis points in December ‌after US consumer inflation data for September came in significantly above expectations.

The brokerage had been the lone holdout, forecasting ‌no further Fed rate moves this year, even as ‌financial markets largely anticipated a December hike. Citi said it expects the Fed to hold policy rates steady after a widely expected December ⁠rate ​increase, with ⁠markets pricing in a roughly 94% probability of a hike in the ⁠month. Citi does not expect rate cuts to begin until ​June 2027.

Data showed September consumer inflation accelerated on surging ⁠gasoline costs and price pressures had expanded beyond energy, raising concerns that ⁠underlying ​inflation could remain sticky. Rate futures tied to the Fed's policy rate implied a 47.1% chance of a ⁠rate hike at the central bank's October 27 to 28 meeting, ⁠up ⁠from roughly 22% before the inflation data was released, according to CME Group's FedWatch tool.