Citi shifts to December Fed hike call after September inflation
The bank now expects a quarter-point increase as rising gasoline costs and broader price pressures complicate the inflation outlook.
Key takeaways
- Citi now expects the Fed to raise rates by 25 basis points in December.
- US consumer prices rose 3.7% year over year in September.
- Markets were pricing in a 94% chance of a December rate increase, according to The Economic Times.
Citigroup now expects the Federal Reserve to raise interest rates by 25 basis points in December, after September inflation came in above expectations. The forecast is a shift from Citi’s previous call that rates would remain unchanged for the rest of the year.
US consumer prices rose 0.6% month over month and 3.7% year over year in September, according to the US inflation report. Gasoline prices climbed 9.1% over the month, while core inflation, which excludes food and energy, rose 0.3% month over month and 2.6% year over year.
The inflation figures strengthened expectations that the Fed may keep monetary policy tighter for longer. The Economic Times reported that markets were pricing in about a 94% chance of a December rate increase.
Expectations for an October move also rose after the report. The Economic Times said interest rate futures showed a 47.1% probability of an October 27-28 hike, up from about 22% before the data.
Citi expects the Fed to keep rates steady after the December increase and forecasts that rate cuts will not begin until June 2027.
This article was produced with the help of AI technology. Based on reporting by the outlets listed above.
