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Citi Predicts 1.25% Fed Rate Cut After US CPI Inflation Data

Published

3 months ago

September 11, 2024

The recent US CPI inflation data has fueled discussions over the potential Fed rate cut in September. While a flurry of experts has trimmed their bets towards a 125 bps rate cut in 2024, CITI appears to have remained stuck to the more dovish stance by the central bank. Despite the recent cooling inflation figures, which have shrugged off concerns over an urgency towards a 0.5% interest rate cut, the analysts are betting towards a softer landing.

Citi Predicts Dovish Fed Rate Cut Plans

Citi economists have held onto their prediction of a 1.25% rate cut by the Federal Reserve, despite the recent inflation data showing signs of cooling. Notably, the latest US CPI data showed that on a YoY basis, the inflation has cooled to 2.5%, down from the market expectations. In addition, the Core CPI inflation came in at 3.2%, which is in line with the market expectations.

These figures have led Citi to anticipate a more cautious 25 bps Fed rate cut at the upcoming Federal Open Market Committee (FOMC) meeting. Notably, Citi’s report notes that the core PCE inflation, which plays a key role in Fed policy decisions, remains stable.

However, Citi economists, according to a recent report, stress that the labor market will remain the primary focus for the Fed in shaping its rate decisions. Despite the recent data, Citi stands by its forecast of 125 basis points in rate reductions for the year, with more significant cuts of 50 basis points expected in November and December.

This approach reflects Citi’s belief in a gradual policy adjustment as the Fed navigates ongoing inflation concerns and a mixed economic landscape.

Market Awaits PPI Inflation Data Ahead September FOMC

The financial markets are closely monitoring the forthcoming US PPI inflation data, which could provide additional insights into inflationary pressures. Market participants are particularly interested in how these numbers will influence the Fed rate cut decision at the next FOMC meeting.

Notably, the Federal Reserve’s strategy on rate adjustments is crucial as it affects borrowing costs and broader economic conditions. In other words, the lower interest rates usually boost the market sentiment, potentially bolstering the market sentiment.

Meanwhile, the US PPI inflation data is expected to show a spike to 0.2% in August, following a surge of 0.1% in the prior month. However, the Core PPI is likely to come in at 0.2%, down from the 0.3% figure noted in July.