Citi sees Fed holding rates after 25bp hike, cuts expected in 2027

Citigroup analysts said the Federal Reserve’s unanimous 25bp rate increase was close to market expectations, while the median dot plot projected one additional 25bp hike this year.

The Federal Open Market Committee raised interest rates by 25 basis points in a unanimous decision. According to the Citi analyst note, the median dot plot indicated that policymakers project one more 25bp increase this year.

Key details

• The FOMC unanimously approved a 25-basis-point interest rate increase.
• Citigroup described the decision as close to market expectations.
• The median dot plot showed one additional 25bp hike projected for this year.
• Citi expects rate cuts to resume in June 2027 under its base case.

Warsh’s comments and core PCE revision

Fed Chair Warsh repeated hawkish language but declined to offer guidance on the central bank’s reaction function. Warsh said the action “starts to show that we are serious.”

Citigroup characterized that statement as a modest hawkish surprise. The analysts applied the same description to an upward revision to core personal consumption expenditures inflation for 2026.

Despite those elements, Citi’s overall assessment was that the FOMC outcome remained close to what markets had expected.

Citigroup’s outlook for Fed policy

Under its base-case forecast, Citi expects the Federal Reserve to keep policy rates steady in October and decline to raise rates in December. The firm then expects the central bank to resume rate cuts in June 2027.

Citi also pointed to the possibility that inflation readings could cool between now and the December FOMC meeting. That possibility includes potential downward revisions to core PCE inflation, according to the analyst note.

The forecast leaves Citi expecting no December hike even though the median dot plot projects one additional 25bp increase this year.