Citi Postpones Fed Rate Cut Forecast to Mid-2027 After Strong Jobs Report

Citigroup has pushed back its forecast for the next cycle of Federal Reserve interest rate cuts to June 2027, a significant delay driven by a stronger-than-expected U.S. jobs report for August. The bank's economists now believe the resilient labor market gives policymakers more latitude to focus on inflation without needing to stimulate employment.

New Forecast Details

In a research note, Citi economists Andrew Hollenhorst and Veronica Clark outlined a new timeline for monetary easing, abandoning their previous call for cuts starting in late 2026.

• New Forecast: Three 25-basis-point cuts in June, September, and December 2027.
• Previous Forecast: Cuts were anticipated in October and December 2026, and January 2027.

The revision follows the latest U.S. employment data, which showed the economy remains on solid footing.

Resilient Labor Market Drives Shift

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The primary catalyst for the updated forecast was the August employment report, which far surpassed expectations. U.S. employers added 162,000 jobs, well above the consensus estimate of roughly 56,000. The unemployment rate held steady at 4.1%, contrary to Citi's expectation that it would rise significantly over the summer as it had in 2024 and 2025.

This sustained labor market strength removes a key pillar of the argument for near-term rate cuts. According to Citi, Fed officials can now afford to keep policy restrictive for longer to ensure inflation is fully contained.

Market Impact and Inflation Outlook

While the jobs data has delayed the bank's rate-cut timeline, Citi's economists noted that their underlying view on cooling inflation remains intact. They expect moderating wages and consumer prices to eventually justify policy easing. The bank anticipates the upcoming core Consumer Price Index (CPI) to rise a modest 0.18% month-over-month.

Following the jobs report, financial markets adjusted their own expectations. According to Investing.com, fed funds futures now imply a 61% probability of a 25-basis-point Fed rate hike at the September meeting, up from 52% before the data was released. This shift places even greater importance on next week’s inflation figures as investors seek clarity on the Fed's next move.