Citi Trims Fed Bet for 2024, Still Sees Multiple Rate Cuts

(Bloomberg) -- Citigroup Inc. dialed back expectations for Federal Reserve interest-rate reductions on Friday, while remaining among the most dovish forecasters on Wall Street.

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Following the release of an inflation gauge that increased more than the bank’s economists expected, they predicted 100 basis points of Fed easing this year beginning in July, compared with a previous forecast of 125 basis points beginning in June.

Forecasters at most other banks had already abandoned calls for Fed rate cuts before the second half of the year, with some — including those at Bank of America Corp. and Deutsche Bank AG — looking for a first move in December. At the start of the year, calls for at least 100 basis points of easing in 2024 were common, based on expectations that 11 rate increases over the past two years would lead to an economic slowdown and inflation closer to the Fed’s 2% target.

The US central bank’s rate-setting Federal Open Market Committee meets next week for the first time since March, when its members published forecasts showing a median expectation for three quarter-point rate cuts by year-end. Since then, however, several inflation readings have failed to show continued progress. The FOMC’s subsequent meetings are in June and July.

“With just one month of inflation data for April before the June FOMC meeting, officials will likely have to wait until July to gain ‘greater confidence’ that inflation is slowing,” Citigroup’s Veronica Clark, Andrew Hollenhorst and Alice Zheng wrote in a report.

Personal income and spending data for March released Friday included price deflators that are the Fed’s preferred gauge of inflation. The core deflator, which excludes food and energy, rose 0.32% from February — compared with Citigroup’s 0.26% forecast — and 2.8% from a year earlier.

Earlier this week, short-term interest-rate markets ceased to fully price in a quarter-point rate cut by the US central bank sooner than December in response to hotter-than-expected inflation data in the initial estimates of US GDP the first quarter.

--With assistance from Edward Bolingbroke.

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