Key facts
- Citigroup now expects the Federal Reserve to raise interest rates by 25 basis points in December.
- September US consumer inflation accelerated due to surging gasoline costs.
- Price pressures have expanded beyond energy, indicating potentially sticky underlying inflation.
- Markets are pricing in a roughly 94% probability of a December rate hike.
- Citigroup forecasts that rate cuts will not begin until June 2027.
Citigroup has shifted its stance, now anticipating a 25 basis point interest rate hike by the Federal Reserve in December. This adjustment follows the release of September's US consumer inflation data, which significantly surpassed expectations. The brokerage was previously the only one forecasting no further rate moves for the year, diverging from market consensus that largely anticipated a December increase.
The September inflation data indicated an acceleration driven by rising gasoline costs, with price pressures extending beyond the energy sector. This has raised concerns about the persistence of underlying inflation. Rate futures tied to the Fed's policy rate now imply a 47.1% chance of a hike at the central bank's October 27-28 meeting, a notable increase from the 22% probability before the inflation data was released, according to CME Group's FedWatch tool.
Citigroup does not foresee the Federal Reserve beginning to cut interest rates until June 2027.