Economists at Citigroup have revised their forecast for the U.S. Federal Reserve’s first interest rate cut, pushing the expected start date from June to July. The adjustment, detailed in a client note, cites stronger-than-anticipated economic data and recent public statements from Federal Reserve officials.
In the note, Citigroup stated that the U.S. economy’s resilience and persistent inflation indicators have reduced the urgency for the central bank to ease its monetary policy. The firm now projects a total of 100 basis points, or one full percentage point, in rate reductions for 2024. This is a decrease from its previous forecast of 125 basis points.
“We are changing our base case for the first Fed cut from June to July,” the note, authored by economists including Andrew Hollenhorst, explained. The report pointed to continued strength in the labor market and inflation figures that remain above the Federal Reserve’s 2% annual target as key factors influencing the revised timeline.
The Federal Reserve’s Federal Open Market Committee (FOMC) has held its benchmark federal funds rate steady in the 5.25% to 5.50% range since July 2023. This rate represents the highest level in over two decades, a policy intended to curb inflation by increasing the cost of borrowing.
Federal Reserve officials, including Chair Jerome Powell, have consistently stated that their decisions on interest rates will be data-dependent. In recent appearances, Powell has reiterated the committee’s cautious approach, emphasizing the need for greater confidence that inflation is moving sustainably toward the 2% goal before considering rate cuts.
The adjustment by Citigroup reflects a broader trend among financial institutions, many of which have recalibrated their expectations following recent economic reports. Data from the Bureau of Labor Statistics has shown a robust job market, while inflation metrics like the Consumer Price Index (CPI) have shown a slowdown that is less consistent than previously anticipated.
Citigroup’s forecast anticipates that the FOMC will proceed with rate cuts on a quarterly basis beginning in July, with subsequent reductions in September and December. The firm maintains its projection for an additional 100 basis points in cuts in 2025. The new forecast aligns with a growing sentiment in financial markets that a “higher for longer” interest rate environment will persist through the first half of the year.
