Citigroup Predicts Fed Interest Rate Cuts to Begin in June
Citigroup Strategists Anticipate Fed Rate Reductions
Citigroup strategists are forecasting that the Federal Reserve will initiate interest rate cuts in June, aligning their projections with the central bank’s expectations for an upcoming easing cycle. Despite recent hawkish signals from other Fed officials, Chair Jerome Powell is expected to maintain a dovish stance, according to a research note from Citi.
Inflation Dynamics Under Scrutiny
The bank’s economists are closely monitoring inflation dynamics, with a specific focus on the core PCE price index, the Fed’s preferred inflation metric. The core PCE inflation for February saw a rise of 0.26% MoM, revised upward to 0.45% in January.
Anticipated Increase in Core PCE in March
Citi’s economists predict a stronger ~0.30% increase in core PCE for March, driven by robust performance in medical and financial services sectors. This projection aligns with their outlook for the upcoming easing cycle.
Fed Governor’s View on Inflation
Recent remarks from Federal Reserve Governor Christopher Waller suggest that stronger inflation readings could pose a challenge to initiating rate cuts early. Waller outlined strategies for returning inflation to its 2% target without a significant rise in unemployment, reflecting the contrasting perspectives within the Federal Reserve.
Labour Market Projections and Rate Cuts
Citi is also predicting a slowdown in job growth for March, estimating the creation of 150,000 new jobs, a decrease from previous months. This anticipated deceleration, coupled with signs of a softer labor market, strengthens the case for upcoming rate cuts to bolster economic stability.
Expected Rate Adjustment Timeline
Despite differing viewpoints within the Federal Reserve, Citi’s analysts believe that officials will have enough evidence in inflation data to justify rate cuts starting in June. They anticipate a total of 125 basis points in cuts throughout the year, reflecting a proactive approach to potential economic challenges.
