Fed’s Upcoming Projections Indicate Deeper Cuts Than Previously Expected: Citi

Investing.com Summary

According to analysts at Citi, the Federal Reserve’s upcoming monetary policy meeting is expected to reveal more aggressive rate cut projections than previously anticipated as officials seek to support the economy.

The analysts believe that significant updates to the Summary of Economic Projections will be necessary, predicting an increase in the unemployment rate for the end of the year and a downward adjustment in the expected path for policy rates.

They forecast that the voting members of the Fed will project a total of 100 basis points in cuts for this year, a notable increase from the single 25 basis point cut indicated in the Fed’s June projections. This shift is largely driven by a recent deceleration in inflation, with analysts anticipating that the upcoming inflation data will show a continued trend of slower growth for a fourth consecutive month.

As the market adjusts its expectations for cuts, which are anticipated to reach around 105 basis points, the analysts noted that a median projection of 75 basis points would appear "hawkish" relative to market sentiment.

The trajectory of rate cuts is complex; the magnitude of the cut in September is expected to heavily influence future reductions at subsequent meetings. If the Fed opts for a 50 basis point cut in September—Citi’s forecast—it could lead to prevailing support for 25 basis point reductions in both November and December, resulting in a total of 100 basis points for the year. Conversely, a smaller 25 basis point cut in September would allow the Fed to indicate that a 50 basis point cut could be a possibility at a later meeting.

The upcoming decision by the Fed and its revised economic projections will be closely monitored, especially amidst ongoing discussions regarding the economy’s strength, or lack thereof.