Citigroup Pushes Fed Rate Cut Forecast to June 2027 on Strong Jobs Data

Citigroup has postponed its forecast for the next Federal Reserve interest rate reduction to June 2027, a notable delay from its prior expectation of cuts beginning later this year. The revision follows Friday's U.S. jobs report, which indicated continued strength in the labor market and altered expectations for the central bank's monetary policy path.

Shifting Forecast

The bank now anticipates three 25-basis-point rate cuts in 2027, occurring in June, September, and December, according to a note from its economists, Andrew Hollenhorst and Veronica Clark. This new projection replaces a previous forecast that called for rate reductions in October 2026, December 2026, and January 2027.

Resilient Labor Market

The change in outlook was prompted by an August jobs report that surpassed analyst expectations. Key figures from the report include:

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• U.S. employers added 162,000 jobs.
• The unemployment rate remained unchanged at 4.1%.
• The labor force participation rate saw a noticeable increase.

Citigroup's economists wrote that this data suggests Federal Reserve policymakers will likely view employment conditions as stable, allowing them to maintain their focus on inflation trends.

Market Impact

Following the release of the jobs data, financial markets adjusted their expectations for the Fed's upcoming September 15-16 meeting. The probability of an interest rate hike at that meeting, as priced by Fed funds futures, rose to 61%. This is an increase from the 52% chance priced in before the report, signaling that investors now see a greater likelihood of further monetary tightening in the near term.