Citi pushes Fed rate-cut forecast to June 2027 after resilient jobs market

Investing.com — Citigroup has pushed back its forecast for the Federal Reserve to resume cutting interest rates to June 2027, after a stronger-than-expected August jobs report reduced the urgency for near-term monetary easing.

Citi now expects 25-basis-point rate cuts in June, September and December 2027, abandoning its previous forecast for cuts in October and December 2026 and January 2027, according to a note from Citi economists Andrew Hollenhorst and Veronica Clark.

The shift follows Friday’s U.S. employment report, which showed employers added 162,000 jobs in August, well above the roughly 56,000 expected by economists. The unemployment rate remained at 4.1%, while labor-force participation rebounded, reinforcing the view that the labor market remains broadly stable.

Citi had previously expected the unemployment rate to rise significantly over the summer, similar to the pattern seen in 2024 and 2025. That increase has not materialized in 2026, removing one of the key reasons the bank expected Fed officials to begin cutting rates this year.

The bank said its other argument for a dovish Fed remains intact: cooler trends in underlying inflation, wages and core consumer prices should eventually allow policymakers to ease monetary policy. Citi expects core CPI to rise 0.18% month over month, which it says would support the Fed remaining on hold at its September 15-16 meeting.

It also expects a substantial downward revision to core PCE inflation later this month, potentially prompting a more dovish adjustment to the Fed’s Summary of Economic Projections.

For now, however, the stronger labor market means policymakers can afford to focus more heavily on inflation rather than supporting employment. Market pricing shifted sharply after the jobs report, with fed funds futures putting the probability of a 25-basis-point Fed hike at the September meeting at about 61%, versus 52% before the data.

That makes next week’s inflation data particularly important. Economists expect August headline CPI to rise 0.4% month over month, while core CPI is forecast to increase 0.2%; producer prices are also expected to rise 0.4%.

Investors will be watching the figures for evidence that disinflation is continuing or whether persistent price pressures could give the Fed reason to keep rates higher for longer.