BY COMFORT OGBONNA
Citigroup has revised its expectations for when the Federal Reserve will begin lowering interest rates, pointing to stronger-than-anticipated U.S. employment data and lingering concerns about inflation. The Wall Street banking giant now believes the central bank will delay the start of rate cuts until later in the year.
According to a research note dated April 3, analysts at Citigroup now expect the Federal Reserve to implement a total of 75 basis points in rate reductions spread across September, October, and December. This represents a significant shift from the firm’s earlier projection, which had anticipated cuts beginning much sooner—in June, followed by additional reductions in July and September.
The adjustment reflects the resilience of the U.S. labor market, which has continued to deliver stronger-than-expected performance in recent months. Economists had been predicting signs of cooling in employment that might prompt the Federal Reserve to begin easing its monetary policy earlier in the year. However, recent data has complicated that outlook.
Citigroup analysts explained that although they still expect the labor market to soften eventually, the timing of economic data releases and continued employment strength suggest the central bank will likely wait longer before acting. The firm said that while indicators of slowing hiring are beginning to emerge, the evidence is not yet strong enough to justify immediate policy easing.
“We continue to think signs of a weakening labor market will result in cuts later in the year,” Citigroup wrote in its analysis. “But the timing of upcoming data suggests a later start to rate cuts than we had previously been expecting.”
Labor market data for March reinforced this more cautious outlook. U.S. job growth rebounded more strongly than economists predicted, boosted in part by the end of a strike involving healthcare workers that had temporarily suppressed hiring figures earlier in the year. Additionally, warmer weather conditions helped revive activity in several industries, particularly construction and service sectors that tend to slow during colder months.
Despite the strong headline numbers, Citigroup analysts warn that underlying risks for the labor market remain. Economic uncertainty linked to geopolitical tensions—including an ongoing conflict involving Iran—could weigh on business confidence and hiring decisions in the coming months. Such global developments often influence energy prices, financial markets, and corporate investment plans, all of which can affect employment trends in the United States.
Citigroup believes that while job creation has remained solid so far, hiring momentum could weaken later in the year. The firm expects employers to become more cautious as borrowing costs remain elevated and economic uncertainty persists.
As a result, the bank forecasts that unemployment will gradually rise during the summer months, a pattern similar to trends observed in recent years. Slower hiring and a modest increase in layoffs could push the jobless rate higher, creating the economic conditions that would justify the Federal Reserve beginning to cut interest rates.
The central bank has kept borrowing costs elevated in its ongoing effort to bring inflation under control. Officials have repeatedly emphasized that they need greater confidence that price pressures are sustainably easing before shifting toward monetary easing.
Citigroup’s revised forecast suggests that policymakers will likely wait until clearer signs of economic cooling emerge before moving to reduce rates. If the labor market weakens and inflation continues to moderate later in the year, the Federal Reserve could begin its easing cycle in the fall, gradually lowering borrowing costs through the final months of the year.
For investors and businesses, the delayed timeline highlights the ongoing uncertainty surrounding the path of interest rates. While many market participants had been hoping for earlier relief from high borrowing costs, strong economic data has complicated the Federal Reserve’s decision-making process and pushed expectations for policy easing further into the future.