Summary
Citigroup has revised its timeline for the Federal Reserve's first rate cut, moving the expected start from September to October after the Fed's latest Summary of Economic Projections showed a stronger-than-anticipated preference among officials for higher policy rates through the end of the year. The Federal Open Market Committee (FOMC) voted unanimously to keep the benchmark federal funds rate in a range of 3.50% to 3.75%.
Dot plot shift signals hawkish lean
The Fed's updated "dot plot" indicated that nine of 18 officials favored higher policy rates at year-end. Those officials broke down their preferences as three for a 25 basis-point increase, five for 50 basis points and one for 75 basis points. That outcome contrasted with market expectations that only three or four officials would forecast a 25 basis-point rise, and represented a marked reversal from March, when no official had penciled in a rate increase for the year.
The FOMC's post-meeting statement emphasized that inflation "remains elevated relative to the Committee's 2 percent goal," and pointed to supply shocks, including in energy prices, while reiterating the Fed's commitment that it "will deliver price stability." The committee's decision to hold rates was unanimous, recorded as a 12-0 vote.
Fed chair's first meeting and comments
At his first FOMC gathering, the Fed's new chair characterized the dot plot as reflecting a committee that is effectively split between raising rates and holding or cutting them, and suggested the projections did not display strong conviction. He described the submitted dots as having been drawn with pencils with "big erasers," said he would not supply a dot himself, and noted the dot plot might be removed from the Summary of Economic Projections by year-end.
How Citigroup adjusted its outlook
Following the Fed's projections, Citigroup pushed back its expected timing for the initial rate reduction to October from September. The bank continues to anticipate softer employment and inflation readings over the summer months, with particular emphasis on easing in core CPI. Despite that expectation, Citi warned that a committee divided on policy could delay agreement on cuts.
Citigroup maintains its forecast that the federal funds rate will be reduced to a range of 2.75% to 3.00% through three quarter-point cuts, slated for October, December and January.
Fed internal reviews
The chair announced the creation of five internal task forces, each due to report by year-end. The groups will examine Fed communications and the role of the dot plot, the framework for the central bank's balance sheet, the potential use of alternative and higher-frequency data, the effects of artificial intelligence on productivity and jobs, and the fundamental drivers and measurement of inflation. The chair specified that the 2% inflation target itself will remain outside the scope of this review.
Implications
The Fed's unexpectedly hawkish dot plot and the unanimous decision to hold rates have prompted at least one major bank to delay its projected easing timeline, highlighting how internal divisions among policymakers can affect market expectations. Citigroup's adjusted schedule still points to material easing by early next year, but emphasizes the possibility that a lack of consensus could stretch the timeline.