Citi Adjusts Fed Rate Cut Path, Expects Cuts in March, July, and September

Citi adjusted its expectations for the Federal Reserve's rate-cut trajectory in 2026, now projecting reductions in March, July, and September. The bank's revised forecast reflects evolving economic conditions and policy signals from the central bank. The changes come as markets monitor the Fed's balance between inflation control and economic growth.

The Congressional Budget Office (CBO) also expects the Fed to reduce rates in 2026, with the federal funds rate potentially reaching 3.4% by 2028. The CBO's outlook incorporates factors such as Trump-era policies, immigration shifts, and the effects of the 2025 government shutdown on economic momentum according to CBO analysis.

Corporate developments are also shaping market sentiment. China Vanke, a major property developer, announced preparations for a debt restructuring plan, signaling deeper industry challenges. The firm's actions are seen as a typical prelude to reorganization, given the prolonged slump in China's property sector as reported by Bloomberg.

Why Did This Happen?

The Citi rate-cut forecast aligns with broader economic projections. The CBO anticipates U.S. GDP growth of 2.2% in 2026, supported by fiscal stimulus and a rebound from the 2025 government shutdown. However, inflation is expected to remain above the Fed's 2% target, creating a cautious environment for monetary easing according to CBO analysis.

Unemployment is projected to peak at 4.6% in 2026 before declining to 4.4% by 2028, according to CBO analysis. These trends highlight the Fed's dual mandate to manage both employment and inflation, complicating the timing and size of rate cuts according to CBO analysis.

How Did Markets React?

Corporate earnings and restructuring plans are influencing investor sentiment. RPM International, for example, outlined strategic changes including production consolidation and cost management. These efforts aim to improve long-term efficiency, though they may temporarily hurt short-term profitability as reported by MarketBeat.

Chemtrade Logistics raised its monthly distribution for 2026, signaling confidence in its operational performance. The firm's capital allocation strategy and improved balance sheet provide a foundation for future growth amid volatile commodity markets as stated in Marketscreener.

In the financial sector, Citigroup announced a strategic shift by exiting its Russian operations. The move is expected to impact fourth-quarter earnings but also improve capital ratios. Analysts view the restructuring as a key step toward simplification and long-term stability according to Simply Wall St.

What Are Analysts Watching Next?

Analysts are closely tracking the Fed's decision-making process. The CBO forecasts two rate cuts in 2026, with additional reductions expected in 2027 and 2028. These projections suggest a gradual easing cycle rather than rapid cuts, which could influence market positioning according to CBO analysis.

Bond yields are also in focus. The CBO anticipates that 10-year Treasury yields will rise slightly to 4.3% by 2028, despite Fed rate reductions. This trend indicates that long-term borrowing costs, including mortgages, could remain elevated for some time according to CBO analysis.

In the equity markets, analysts are watching for signs of a broader economic recovery. The S&P 500 is expected to rise by 10% in 2026, with some analysts projecting gains of up to 17%. These forecasts rely on continued Fed easing, stable economic growth, and the success of corporate restructuring efforts as reported by TradingView.

Political developments, including the potential appointment of a new Fed chair, could also impact monetary policy. Analysts anticipate a shift toward more aggressive rate cuts under a new administration, but the timing of such changes remains uncertain according to FXStreet analysis.

The Fed's upcoming data releases, particularly inflation and employment reports, will provide further insight into its policy path. The December CPI report and other key indicators will be closely watched for signs of progress on inflation and labor market conditions according to FXStreet analysis.