Citigroup has adjusted its outlook for when the Federal Reserve will begin trimming interest rates, delaying its prior expectation for cuts and placing the first reduction in June 2027. The bank now expects three 25-basis-point moves in June, September and December of next year.
This revised timetable replaces Citigroup's earlier projection, which envisaged rate cuts in October and December 2026 and January 2027. The firm revised the schedule after receipt of the latest U.S. labor-market figures.
The August employment report showed U.S. employers added 162,000 jobs, a result that exceeded analyst forecasts. The unemployment rate held steady at 4.1%, while labor force participation rose compared with the prior reading.
Citigroup economists Andrew Hollenhorst and Veronica Clark interpreted the data as signaling that policymakers are likely to regard employment conditions as broadly stable and to shift their focus toward developments in inflation. In their note, the pair observed:
"The unemployment rate was unchanged and labor force participation rebounded noticeably,"
Market participants responded to the jobs report by re-evaluating expectations for Federal Reserve action. Fed funds futures priced in a 61% probability of a policy move at the central bank's September 15-16 meeting after the report, up from a 52% probability before the data were released.
The bank's altered forecast reflects an updated reading of incoming economic signals rather than a change in the magnitude of anticipated easing - Citigroup still projects three reductions of 25 basis points each, but now concentrated in mid-to-late 2027 rather than in late 2026 and early 2027.
Observers of interest-rate-sensitive markets and policymakers will likely watch subsequent inflation readings and labor-market releases for confirmation that earnings and hiring patterns are consistent with a gradual easing timetable. For now, the jobs print and the bank's revised forecast have led market pricing to shift closer to the view that the Fed may act later than previously expected.