Citi Delays Fed Rate Cut Forecast to June Next Year, Expects Three Cuts in 2027
SingTao · 2 SOURCESabout 2 hours ago2 MIN
Summary
Citigroup has become the latest major bank to push back its Federal Reserve rate cut forecast, now anticipating the first reduction in June 2027 rather than October 2026, after US employment data for August surprised to the upside. The US economy added 162,000 non-farm jobs last month, roughly triple market expectations, while the unemployment rate remained unchanged at 4.1% and labor force participation rose. The stronger-than-expected labor market has shifted sentiment, with the CME FedWatch tool now pricing in nearly 60% odds of a rate increase at the September meeting. Citi expects three quarter-point cuts in 2027 but sees no urgency for easing this year.
Key Points
- Citigroup now forecasts the Fed will cut rates in June, September, and December 2027, each by 25 basis points
- August non-farm payrolls increased by 162,000, far exceeding the market consensus of 56,000
- The unemployment rate held at 4.1%, matching expectations, while labor force participation rose from 61.4% to 61.6%
- June and July payroll figures were significantly revised upward, adding a combined 55,000 jobs to prior reports
- The CME FedWatch tool indicates the probability of a September rate hike has climbed to nearly 60%
Why It Matters
The Federal Reserve's policy trajectory directly affects borrowing costs across Hong Kong, from mortgage rates to corporate financing. With rate cuts delayed until mid-2027 at the earliest, Hong Kong businesses and consumers face prolonged higher borrowing costs, potentially dampening investment and property market activity. The stronger US jobs data also supports a stronger dollar, which could pressure the Hong Kong dollar linked exchange rate and imported inflation into the territory.
The Federal Reserve's policy trajectory directly affects borrowing costs across Hong Kong, from mortgage rates to corporate financing. With rate cuts delayed until mid-2027 at the earliest, Hong Kong businesses and consumers face prolonged higher borrowing costs, potentially dampening investment and property market activity. The stronger US jobs data also supports a stronger dollar, which could pressure the Hong Kong dollar linked exchange rate and imported inflation into the territory.