Breaking News: Fed to Cut Rates Deeper Than Expected, Citi Analysts Say
In a recent note, Citi analysts have predicted that the Federal Reserve's updated projections will show a willingness to cut rates more aggressively than previously anticipated in order to support the economy. This comes ahead of the central bank's monetary policy meeting next week.
According to the analysts, Fed officials are likely to update their Summary of Economic Projections significantly. They expect the unemployment rate to be revised upward by the end of this year, while the path for policy rates will be revised downward.
The analysts anticipate that the voting Fed members' projections, known as "dots," will indicate a total of 100 basis points of cuts this year, compared to just one 25 basis point cut projected in June. This shift towards a more dovish stance is driven by a recent slowdown in inflation, with Citi forecasting the fourth consecutive month of slower growth in inflation data set to be released on Wednesday.
While the market is anticipating approximately 105 basis points of cuts, a median dot projection of 75bp would be seen as hawkish relative to expectations, according to the analysts. The path for rate cuts is not straightforward, as the size of the rate cut in September will influence the depth of future rate cuts at subsequent meetings.
If a larger 50bp cut is implemented in September, as Citi predicts, most Fed officials may support 25bp cuts in November and December, resulting in a median dot projection of a total of 100bp of cuts for the year. However, if the Fed opts for a 25bp cut in September, they could signal to the market that a 50bp cut is possible at a future meeting.
The upcoming Fed decision and updated Summary of Economic Projections will be closely monitored, especially given the ongoing debate surrounding the strength of the economy.
In summary, the Fed is expected to take more aggressive action to cut rates in order to support economic growth. This could have implications for various financial markets and impact individuals' investment decisions. Stay tuned for updates on how these developments may affect your finances.